Expected loss levels raised for new $211M CommonBond SLABS deal

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A new CommonBond private student-loan securitization is expected to generate slightly higher losses than the Goldman Sachs-owned lender’s previous transaction of refinanced loans of professional-degreed borrowers.

Both Moody’s Investors Service and DBRS Morningstar are projecting slightly elevated losses for the $211 million CommonBond Student Loan Trust 2020-AGS, the first asset-backed transaction for CommonBond since late 2019.

Moody’s has loss expectations of 1.5%, compared to the CommonBond 2019-AGS deal’s 1.35% forecast by the ratings agency. DBRS has elevated its base-case loss level to 1.8%.

Both projections reflect the higher risk associated with securities backed by borrower loan repayments, which may be stressed in the near-term by the economic decline related to the coronavirus outbreak.

Bonds backed by loan refinancings of CommonBond, like other professional student loan refinancing companies such as SoFi and Laurel Road Bank, are a more recent asset-class have been untested thus far during an economic downturn, the ratings agency reports stated.

Common Bond, founded in 2013, is a majority owned affiliate of Goldman Sachs Asset Backed Securities Corp., which will retain 5% to provide “skin in the game” with investors.

The new transaction features loans with an average principal of $76,711, being rapid at a weighted average interest rate of 4.59% by borrowers with super-prime FICO scores averaging 777.

The loans have a WA remaining term of 150 months, supporting a capital stack of Class A and B notes with a weighted-average life of 3.6 years.

The Class A notes totaling $195.45 million have preliminary triple-A ratings from Moody’s and DBRS Morningstar.

Moody’s says the deal has “strong” structural features that will provide excess spread proceeds for the first six months of the deal to all classes of notes. There are also cash trap triggers should the balance of defaulted loans build up or if a rolling six-month average of deferments or forbearance agreements exceed 7.5% of the pool balance, according to presale reports.

The loans, most of which are fixed-rate, are all serviced by Nelnet.

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