FinanSure Student Loans, a Chicago-based student loan provider, is preparing to launch a $925 million securitization deal primarily backed by FFELP consolidated education loans. This marks the student loan issuer's first time coming to the ABS market.

RBC Capital Markets is acting as lead manager on the deal, named FinanSure Student Loan Master Trust I. FinanSure currently has a $500 million revolving line of credit through Royal Bank of Canada.

The transaction is memorable not just because it is the company's first. The Series 2007-1 securitization transaction is making a name for FinanSure from the start by adding a BBB' rated class C tranche to the structure. The feature represents a noteworthy change from most student loan transactions, according to Fitch Ratings, and not only because it might allow the issuer to get premium pricing from the notes.

Generally speaking, FFELP student loan ABS bonds are rated as low as A', although some ABS deals backed by private loans have been rated as low as Baa'. Nowadays, the idea of including BBB' rated class C notes in FFELP-backed deals is starting to catch on in the student loan ABS market. The technique allows issuers to take more proceeds out of the transaction by going down to that rating level. It also gives issuers cash upfront, instead of forcing them to wait for it to come through the deal's waterfall in the form of built up excess spread. Market professionals say the feature could be useful to new and more seasoned issuers for various reasons. Excess cash allows the newer issuers to put money back into their businesses, especially if their main source of funding is securitization. More established issuers might use the technique to buy more loans and recycle them into their lending programs. Either way, instead of waiting as a residual holder to get cash, issuers can pull it out of the transaction upfront, market sources said.

"It is money in their pocket for whatever reason," said a source familiar with the sector. "You are going to see more of that. This idea has started to take hold [in the student loan ABS market]."

At some point, however, any student loan ABS deal that uses the class C tranche, or any other cash-out' technique, has to make sure that the deal has enough excess spread to bring the transaction to parity.

Structured with two forward deliveries, the transaction will place classes A-1 through A-5, as well as the B and C notes at closing. Classes A-8 through A-10 will be issued around Aug. 15, 2007, according to Fitch.

Based in Chicago, FinanSure specializes in providing Stafford, PLUS, consolidation and private student loans. Established in 2005, the first-time issuer began providing student loans in 2002, when it was still part of its predecessor, FinanSure Inc., a residential mortgage company, according to the firm's Web site. To date, it has provided more than $1.5 billion in consolidated loan financing for students.

(c) 2007 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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