Student loan servicer Navient is marketing $1billion of bonds backed by federally guaranteed student loans, according to rating agency presale reports.

Navient Student Loan Trust 2017-1 will issue three tranches of notes with preliminary AAA ratings from DBRS, Standard & Poor’s and Moody’s Investors Service.

All have a legal final maturity of July 2066.

To increase the likelihood that each class of Class A Notes will be paid off by the legal final maturity date, on or after the September 2032 distribution date, excess funds will be used to turbo principal to the Class A Notes rather than being released from the trust.

The pool consists of 30.6% unsubsidized Stafford loans, 25.4% subsidized Stafford loans, 23.1% unsubsidized Consolidation loans, 16.8% subsidized Consolidation loans, 4.0% PLUS loans and 0.1% SLS loans.

Approximately 20.0% of the pool consists of loans that have previously defaulted but have been making timely payments for at least 10 months.  “While rehab loans benefit from the same guarantee as non-rehab loans, (they) have historically exhibited much higher cumulative defaults and default quicker than non-rehab loans,” DBRS noted in its presale report. “This increases the liquidity risk of the transaction because a more significant concentration of loans is expected to be nonperforming.”

On the plus side, the rating agency said, rehab loans, however, have historically exhibited a lower default claim reject rate from the Department of Education.


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