Michigan Finance Authority plans to issue a $168 million bond backed by private student loans originated by the State’s finance authority, according to Fitch Ratings.

Bank of America Merrill Lynch and Morgan Stanley have been hired as lead managers on the deal.

A pool of fixed- and variable-rate student loans back the series 25-A.  The pool consists of 21,743 loans and the loans have a remaining term of 15.7 years. The weighted average FICO for the pool is 733. Loans to credit worthy borrowers comprise 78.0% of the portfolio and approximately 62.0% of the loans are co-signed. The majority of the portfolio is in repayment.

The bond has been assigned preliminary ratings of ‘A+’ by Fitch.  The state will reimburse the trust for up to $15.0 million of defaulted loans once cumulative defaults reach $14.0 million.

Since the state provides most of the support for the bonds, the ratings of the bonds can never be higher than the state’s ratings, which is currently at ‘AA’.  It also means that a downgrade of the state rating would impact the bond’s ratings, according to the presale report.

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