ECMC Group is marketing another $409 million of notes backed by federally guaranteed student loans that were once delinquent but are now making timely payments.
The deal, dubbed ECMC Group Student Loan Trust 2017-1, will issue a single tranche of notes that mature in July 2066 with preliminary triple-A ratings from Moody’s Investors Service.
ECMC is a non-profit organization based in Delaware that acts as a student loan guaranty agency. When Federal Family Education Loans default, the lender submits a claim to the guarantor, which assumes the loan and "rehabilitates" it, or helps the borrower resume making timely payments. The guarantor can then resell the loan to another eligible lender; in this case, Manufacturers and Traders Trust Co., which serves as the trustee for the securitization trust.
Rehabilitated FFEL benefit from the same government guarantee as FFEL that have never defaulted - up to 97% of the principal and interest. However losses on rehabbed FFEL are higher because they tend to redefault at a higher rate than FFEL default.
Moody’s expects the pool of collateral to experience a cumulative net loss of 1.70%.
In addition to the government guarantee, Moody's rating is based on the overcollateralization of the trust ($22.1 million or 5.11% of the pool balance), a fully funded reserve account at closing, and excess spread (ranging from 120 to 140 basis points a year) that is trapped to a target overcollateralization level and is exclusively used to pay down bonds on or after June 2039.
This last feature is intended to reduce the risk of a slowdown in the rate of repayment of the loans, which could result in the bonds not paying off at maturity. A large number of borrowers are enrolling in generous repayment plans that lower monthly payments.
Just over 41% of loans in the collateral pool are deferment, forbearance, or a plan that bases monthly payments on income levels. That’s significantly higher than the 27% in ECMC’s previous transaction completed in August, ECMC 2016-1.
Approximately 47.5% of the student loans by principal balance are rehabilitated consolidation loans, 48.9% are rehabilitated Stafford loans, 3.0% are rehabilitated PLUS loans and 0.5% of the initial trust student loans are rehabilitated SLS loans. The average outstanding principal balance per borrower is $21,541, the weighted average borrower interest rate is 6.09%, and the weighted average remaining term to maturity is 190 months.
The weighted average borrower age is 45.7 years.