Navient is contemplating another securitization of federally guaranteed student loans to borrowers who were once in arrears but are now making timely payments.
In a conference call Wednesday to discuss second-quarter financial results, company executives said that a second transaction would be similar in size the first deal, completed in June; it issued $520 million of triple-A rated notes from that deal. They did not disclose pricing on the securities, but indicated that they would expect the spread over the Libor benchmark to be narrower than that on the June transaction.
Chief executive Jack Remondi also reiterated that Navient, the nation’s largest student loan servicer, is in talks with a number of financial institutions about acquiring portfolios of Federally Family Education Loans. The government stopped making FFELP loans in 2010 and banks have been shedding their portfolios, in part because of regulatory scrutiny of servicing. Those sales came to a halt last summer, when two rating agencies, Moody’s Investors Service and Fitch Ratings, raised red flags about the slowing rate of loan repayments, putting billions of dollars of FFELP bonds under review for downgrades.
Navient indicated in April that the market for FFELP bonds was beginning to thaw, which could make it more economical for the company to purchase FFELP portfolios from banks. On Wednesday’s call, Remondi said that the outlook for future portfolio sales is “quite promising,” though no deals are imminent.
However, the CEO said that the "most exciting opportunity" for the company is an education loan servicing contract that Department of Education is putting up for bid. He said that Navient, along with two other bidders, made the first cut.
Navient acquired $623 million of FFELP loans in the second-quarter, for a total of $2.2 billion for the year to date. The company also completed three FFELP securitizations totaling $1.8 billion during the quarter. At June 30, 2016, it held $92.6 billion of FFELP loans, down slightly from $100.3 billion at June 30, 2015.
Navient also acquired $23 million of private education loans in the second-quarter 2016, for a total of $29 million for the year to date. At June 30, 2016, it had $24.7 billion of private education loans, compared with $28.1 billion at June 30, 2015.