Nelnet will administer the market's first single-seller ABCP conduit backed by student loan collateral. Credit Suisse structured the $5 billion market value extendable ABCP conduit, called Nelnet Student Asset Funding Extendable CP LLC, which was preparing to come to market last week. Market players in recent months had been predicting the emergence of the first such conduit, as well as the emergence of student loan-backed extendable notes.
"We've had discussions with people over the years that talked about doing this sort of thing, and Nelnet finally did it," said Everett Rutan, a senior vice president at Moody's Investors Service.
The facility will fund FFELP loans, which are student loans guaranteed by the U.S. Department of Education. The secured liquidity and callable notes to be issued by the facility have an expected 307 day maturity; the legal final maturity is 397 days from the issuance date. Upon extension, the notes will yield Libor plus 25 basis points. The facility received a Prime-1' rating from Moody's and an "A-1+" rating from Standard and Poor's. S&P did not respond to a request for comment by press time. Special Purpose Entities Lincoln Square Funding LLC and Nelnet Student Asset Funding Extendable CP LLC will act as depositor and issuer, respectively.
The deal comes at a time when a number of market participants are raising an eyebrow to the changing face of both ABCP programs and their administrators. Additionally, some have predicted a drop-off in multi-seller conduit volume, as the option for a single-seller structure has become more accessible through structures such as Nelnet's.
More student loan-backed structures are expected within the now $1 trillion-plus commercial paper market, as student loan ABS volume continues to grow along with the acceptance of both market value and extendable note ABCP structures. In fact, several extendable note conduits backed by student loan ABS are said to be at various stages of development (ASR, 07/17/06). Student loan ABS issuance grew to $63.2 billion in 2005 from $4.7 billion a year earlier. As of June 30, student loan ABS volume had swelled to $40.4 billion, up 36% from a year earlier, according to the Bond Market Association. Because a number of newer ABCP structures don't require 100% liquidity support, and structuring flexibility is available through such options as structured investment vehicles, more growth is anticipated within the ABCP market.
Nelnet is one of the top FFELP loan holders and servicers, and also ranks among the top FFELP Stafford and PLUS loan originators. The publicly traded company has a current market capitalization of about $2.2 billion and services a portfolio of about $37 billion in student loans. Nelnet has issued about $19 billion in ABS to the market since 2002, according to Moody's.
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