Goal Structured Solutions is resecuritizing more bonds backed by legacy private student loans in order to take advantage of lower funding costs now available for this asset class.
The new offering, GAM Resecuritization Trust 2018-A, is backed by three tranches of notes issued via GOAL Structured Solutions 2016-A, along with the residual interest in the original deal. Ultimately, the new notes are backed by the collateral for GOAL 2016-A: $98.4 million of loans issued before the financial crisis by Citibank under its CitiAssist loan program through its former student lending affiliate, the Student Loan Corp.
By comparison, Goal’s prior resecuritization was ultimately backed by legacy student loans acquired from Navient Corp.
Like securitization itself, resecuritization is often used to convert risky assets into securities with different ratings, some of them safer than the underlying assets. But that does not appear to be the case here, because the student loan bonds Goal issued in 2016 were performing well. The three tranches of notes being resecuritized were rated AAA, AA and A by DBRS at issuance, and have never been downgraded.
Rather, resecuritizing the transaction allows Goal to benefit from a reduction in spreads over the last two years. So even though interest rates are higher, the sponsor may be reducing its funding costs. It is also borrowing more heavily against the assets, and offering less credit enhancement on the new notes being issued.
Goal is able to resecuritze the original notes because the 2016 deal gave the holder of the residual interest the option to call the transaction by purchasing the notes, starting in June 2018. This is unusual; more typically, student loan bonds can only be called - by the servicer - once collateral has declined to below 10% of original principal balance.
The weighted average seasoning of the loans is 86 months and the weighted average remaining terms is 150 months. Nearly 70% of the loans have co-signers, which generally experience fewer defaults than loans without co-signers. The weighted average FICO of the borrowers, when the 2016 deal was issued, was 758.
When the original deal was issued, DBRS expected 6.25% of the loans to default over the life of the deal, in its base-case scenario; its view has not changed.
Nelnet continues to service the underlying loans; Turnstile Capital Management is the master servicer.
The credit enhancement for the original deal consisted primarily of overcollateralization; at closing the balance of the collateral was 16.5% higher than the balance of the notes. After closing, this was to build up to 26%, subject to a floor of $7.19 million. There was also $715,533 non-declining reserve account that was fully funded at closing.
The new notes carry the same ratings from DBRS as the original notes: $74.54 million of Class A-1 notes are provisionally rated AAA; $3.63 million of Class A-2 notes are rated AA; and $6.55 million of Class B notes are rated A. The trust will also issue $100 million par amount of residual certificates. All of the rated notes pay a floating rate of interest pegged at a discount to the prime rate (as opposed to a premium to Libor) and have a legal final maturity of Aug. 27, 2051.
The initial total overcollateralization for the notes is equal to 11.88% and will build to, and remain at 20%, subject to a floor of $3.36 million. There is also an initial reserve account of 0.25% with a floor of 0.15%.
Goal is reserving the right to refinance the deal a second time; the new notes can be redeemed as early as June 2020.
