Edsouth, a private non-profit, is marketing a $506.8 million securitization of federally guaranteed student loans, according to Moody’s Investors Service.

Edsouth Indenture No. 9, LLC, Series 2015-1 will issue two classes of notes: $496.5 million of class A notes with a preliminary ‘Aaa’ rating from Moody’s and $10.3 million of unrated notes. Both tranches have a legal final maturity of October 2056.

Morgan Stanley and BMO Capital Markets are the lead underwriters.

The student loan portfolio being securitized will consist of 100% Federal Family Education Loan Program loans, including Stafford, PLUS, SLS and consolidation student loans. FFELP loans are reinsured by the U.S. Department of Education for at least 97% of defaulted principal and accrued interest.

Nearly three quarters of the pool, or 71%, are loans that have defaulted in the past but are now current. That’s less than Edsouth’s previous FFELP securitization, in September 2014, which was backed entirely by rehabilitated loans.

While rehabilitated loans benefit from the same federal guarantees as loans that have never defaulted, Moody’s expects them to experience a higher net loss rate because they tend to (re)default at a significantly higher rate. The expected net loss on the aggregate loan pool to be securitized is approximately 1.20%; by comparison, nonrehabilitated FFELP loan pool have an expected net loss of less than 0.50%.

The loans backing Edsouth 2015-1 are serviced by Great Lakes Educational Loan Services, and the Pennsylvania Higher Education Assistance Agency.

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