The Kentucky Higher Education Student Loan Corp. is planning to issue $40 million of bonds backed by both private and federally guaranteed student loans.

The deal consists of single tranche of fixed-rate, tax-exempt notes with a preliminary A rating from S&P Global Ratings.

Merrill Lynch, Pierce, Fenner & Smith is the underwriter.

This is the state student loan agency’s second issuance out of a master trust created in 2014.The new notes will be on parity with the trust's previously issued senior bonds. Proceeds will be used to purchase some existing private student loans originated by the state student loan agency for the 2017-2018 academic year and future loans to be issued by the agency before October 2019.

In addition, the trust will purchase approximately $6 million of Federal Family Education Loans, including consolidation, Stafford, and Parent Loans to Undergraduate Students (PLUS) loans, to provide additional liquidity and credit support to the transaction. About $7.1 million, or 70.2%, of the FFELP loans were once delinquent but are now making timely payments. All of them are serviced by the state student loan agency.

The trust will be at 135.86% parity after the 2017A bonds are issued.

The private student loans to be purchased include approximately $15.5 million of Advantage Education and Parent loans and $4 million of Advantage Refinance loans. The Advantage Education and Parent loans the trust will purchase are relatively unseasoned, according to S&P. While 35.3% of the loans are in repayment status, the obligors have made, on average, only 10.6 payments. The remaining obligors are either still in school (18.9%) or forbearance (45.8%). Interest-only loans make up 25.5% of the pool, while deferred loans make up 58.9%.

The Advantage Refinance loans have higher average balances ($36,754) than the Advantage Education and Parent loans ($11,426); they also a higher weighted average FICO (760) than the Advantage Education and Parent loans (745). 

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