With its first-ever term Libor floater under its belt, nonprofit student lender NorthStar Capital Markets is the latest name in the rapidly growing sector. But unlike some new entrants, NorthStar plans on a more tempered approach to securitization. The primarily graduate-and professional-school lender does not plan to flood the market with ABS, but will offer just one deal a year, according to Chief Financial Officer Jamie Wolfe.

NorthStar, which was a guarantor before it began lending in 1997, is not hell-bent on portfolio growth, as some consolidation lenders may be. It plans to maintain its strategy of targeting primarily medical and law school students with a smaller focus on undergraduates expected to head to graduate programs.

NorthStar's portfolio consists of 90% graduate loans, of which 60% are to med school students. The remaining 10% undergraduate exposure is to borrowers attending institutions that send a high percentage of students to graduate school.

"Our undergraduate relationships are with feeder schools,' added Wolfe, "where 50% to 60% of the students are heading to graduate programs." George Washington University and Vassar College were cited as leading origination channels for NorthStar.

NorthStar's total managed portfolio totals $2.3 billion, with $1.5 billion in its master trust in the form of both term and auction-rate securities. The master trust contains alternative graduate loans, all backed by FFELP.

As a not-for-profit servicer, NorthStar is in a unique position within the ABS market - it can't reap residual interest gains. Instead, NorthStar offers borrowers an annual bonus consisting of whatever residual interest gains it realizes.

While prepayments have concerned most student loan ABS investors, NorthStar's structure mitigates this risk by using the simultaneously offered auction-rate notes, as well as revolving payment periods to control prepayments. NorthStar 2004-A uses the 26-month revolving period in the A1, A2 and A3 classes of its inaugural transaction, meaning the only class that can potentially extend is the 8.9-year A4, which Wolfe estimates would only move out in tenor by one more year.

"Speeds for this deal should remain constant between 3% and 20% CPR," Wolfe added. "Plus we have the auction-rate notes we can sell into in order to cushion the effect."

Additionally, NorthStar has three separate conduit lending facilities in place, with Banc of America Securities, Citigroup Global Markets and RBS Dain Roucher, totaling $1.75 billion. Each of the facilities is wrapped fully by Ambac.

NorthStar's fist deal was sold 60% to European investors and the rest in the U.S. The offering followed a weeklong roadshow in which NorthStar and its bankers were pitching to investors. In fact, Wolfe recalls riding the Eurorail as the March 11 Madrid bombing took place.


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