Goldman plays new role in next CommonBond ABS

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CommonBond’s next securitization of loans used to refinance student debt is its largest to date, at nearly $232 million. But it had a little help from Goldman Sachs, which contributed a portion of the collateral, according to rating agency DBRS.

The transaction, dubbed CommonBond Student Loan Trust 2017-A-GS, is the lender’s fourth rated transaction. DBRS did not specify how much of the collateral was contributed by Goldman, though the presale report lists the investment bank as the lead sponsor.

Like many marketplace lenders, CommonBond, headquartered in New York, relies on a combination of sources of funding, including whole loan sales, often on a forward sale basis, in which it agrees to deliver a steam of loans over a set period of time, and securitization.

Other investors, including student loan servicer Nelnet, have acquired whole loans from CommonBond and subsequently securitized them, albeit through their own programs.

CommonBond competes with lenders such as SoFi Lending Corp., Darien Rowayton Bank, and Earnest Operations, targeting borrowers with advance degrees and high incomes who want to refinance and consolidate their student debt. As of May 1, 2017, CommonBond had funded over $1 billion of student loans to 12,000 borrowers.

CBSLT 2017-A-GS will use a traditional pass-through structure, with credit enhancement consisting of overcollateralization, and reserve accounts, according to DBRS. The offering consists of four tranches of notes: DBRS expects to assign an AA t to the fixed-rate Class A-1 notes, which will be secured by a group of fixed-rate loans, and to the variable-rate Class A-2 notes, which will be secured by a group of variable-rate loans.

There will also be $22.6 million of BBB-rated Class B notes and$8.89 million of BB-rated Class C notes, both of which will be secured by both the fixed-rate and variable-rate loans.

Nelnet Servicing is the servicer.

The credit characteristics of the collateral are similar to those of CommonBond’s three previous securitizations. As of the time of origination, the portfolio has a weighted average credit score of 766. Additionally, the refinanced student loans have a weighted average borrower income of $167,951 and a weighted average monthly borrower free cash flow after expenses of $6,276.

Of the graduate school borrowers, approximately 43.8% (by outstanding principal balance) have a medical degree and have a weighted average income of approximately $242,389, 15.9% hold an MBA degree and have a weighted average income of approximately $139,670, and 19.3% have graduated from law school and earn approximately $172,442.

These kinds of borrowers have tend to prepay their debt, resulting in much shorter terms for bonds backed by these loans. DBRS expects the weighted average life of the loans to be approximately 3.51 years for the Class A-1 Notes, 3.42 years for the Class A-2 Notes, 4.96 years for the Class B Notes and 2.77 years for the Class C notes, assuming a pricing speed of 12% conditional prepayment rate to call.

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