The Massachusetts Educational Financing Authority is planning to issue $75 million of private student loan revenue bonds.

Fitch Ratings expects to assign an ‘A’ rating to the bonds, which benefit from credit enhancement of 9.9%; Standard & Poor’s has provisionally assigned an ‘AA’ rating. The final maturity has yet to be determined.

This is the fifth series issued by the authority. It will use the proceeds to originate refinancing loans until June 30, 2016. The authority can use excess revenues to originate additional loans during a recycling period that ends Sept. 30, 2016.

Underwriting guidelines require the borrower or co-signer have a minimum FICO credit score of 670 and meet a minimum income and minimum free cash flow requirements

Standard & Poor's Expected Cumulative Default Rates: 7.5%-8.5%

The market for private student loan bonds remains under pressure from concerns about potential downgrade of bonds backed by federally guaranteed student loans, even private student loan securitizations are not at risk.

Xerox Education Services is the servicer; Morgan Stanley is the underwriter.

A single transaction was offered in September, the $340.2 million DRB Prime Student Loan Trust 2015-B backed by private refinance loans priced, according to research published by Bank of America Merrill Lynch. It consisted of two senior fixed-rate tranches and one-floating rate tranche rated BBB+ by Fitch and A by DBRS and had an overall weighted average life of 3.9 years. The weighted average spread of the three tranches was 189 basis points over one-month Libor.

Student loan backed securities sold off heavily over the summer after Fitch and Moody’s Investors Service put some $40 billion of bonds backed by Federal Family Education Loans under review for potential downgrades. The rating agencies are concerned that these bond may not pay off by their final maturities.  

Subscribe Now

Access to a full range of industry content, analysis and expert commentary.

30-Day Free Trial

No credit card required. Access coverage of the securitization marketplace, including breaking news updated throughout the day.