Less than three months after predicting that banks would resume unloading portfolios of federally guaranteed student loans, Navient Corp. appears to have completed such a purchase.

The company is marketing $761 million of bonds backed by Federal Family Education Loans, its third securitization this year, according to Fitch Ratings.

While it’s possible that Navient is securitizing loans that it already had on its books, the company’s previous deal, completed in April, was backed by collateral that it had only recently acquired.  

Navient Student Loan Trust 2016-3 will issue three tranches of notes with preliminary ‘AAA’ ratings from Fitch. All benefit from credit enhancement of 2.5%, have the same final, legal maturity of June 2065 and will pay a rate of interest pegged to one-month Libor; the presale report does not indicate how the tranches may differ.

Similar to Navient’s previous deal, approximately 20% of the collateral consists of “rehab” loans to borrowers who were once delinquent but are now making timely payments. Although rehab loans exhibit much higher default rates than regular FFELP loans, they benefit from the same government guarantee of 97% of principal as non-rehabilitated FFELP loans.

The mix of loan types and schools are also similar to that of Navient’s previous securitization, which was also rated by Fitch:  nearly 50% are Stafford Loans to graduates and undergraduates, some 5% are PLUS loans to graduate students, and roughly 45% are Consolidation loans.

The mix of repayment status is also similar: roughly 10% of loans are in deferment, 17% in forbearance and 73% in repayment. However it is unclear from the presale report how many loans classified as in repayment represent borrowers in various programs that allow them to extend repayment for longer terms and lower their monthly payments. The popularity of such programs has prompted both Fitch and Moody’s Investors Service to put billions of dollars of FFELP bonds under review for possible downgrades. The concern is that these bonds won’t pay off by their final maturities.

When the rating reviews were announced last year, the entire market for student loan bonds sold off sharply. But prices have since recovered, prompting Navient to predict in April that banks would resume portfolio sales because buyers can fund purchases at attractive levels in the securitization market. Navient pays 138 basis points over Libor on the five-year student loan bonds that it issued in April.

One clue to the identity of source of loans for this latest deal: the biggest concentration of loans by state (15.6%) is Pennsylvania, followed by New York (9%) and Missouri (8.7%). By comparison, California was the biggest geographic concentration the past four deals completed by Navient that Fitch has rated. Pennsylvania did not show up in the top five of any of these previous deals.

All of the loans are serviced by either Navient Solutions or Pennsylvania Higher Education Assistance Agency.

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