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Navient sponsors $807M SLABS offering of Earnest-unit refinancings

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Navient Corp. is returning to the securitization market, albeit with perhaps its least-risk student loan product.

According to ratings agency presale reports, Navient is marketing bonds totaling $807.6 million backed entirely by loans from its Earnest loan-refinancing unit.

The fixed-rate loans from Earnest involve refinancings to advanced degree professionals who have greater financial means to make payments despite the economic disruption caused by the COVID-19 pandemic.

“While the ongoing the coronavirus disease outbreak has had an adverse effect on the U.S. borrower in general, Navient Refi borrowers are expected to remain resilient because the majority of borrowers entered this crisis period with significant financial strength and are in professions that generally exhibit very low unemployment rates,” according to a report from DBRS Morningstar. “Further, Navient Refi borrowers typically work in industries or professions that are far less susceptible to lost income during a natural disaster or an economic downturn.”

Navient Private Education Refi Loan Trust 2020-D includes a $744.4 million Class A tranche of notes with preliminary AAA ratings from DBRS Morningstar and S&P Global Ratings.

The deal is the 55th overall issuance of private student-loan securitizations issued by Navient, which typically pools older legacy private loans and federally guaranteed loans under the former Federal Family Education Plan Loans program that was disbanded a decade ago in favor of the federal direct-lending program.

The loans issued through the Earnest unit do not include federal guarantees, but are underwritten to doctors, lawyers, MBAs and other graduate-degree students with high incomes and substantial free cash flow. The Earnest unit has funded $10.1 billion in refinanced student loans both as an independent lender and later as a subsidiary of Navient. It competes with other lenders such as Sofi and Commonbond, both of which have issued securitizations since the coronavirus pandemic took hold in the U.S.

Due to risks associated with the COVID-19 outbreak – such as higher levels of forbearance and defaults – Navient is providing more investor protections that in prior securitizations of Earnest-loan ABS portfolios. The credit enhancement for the offering ranged from 16.7%-16.9%, involving both higher subordination support (7.83%) and overcollateralization (10.45%) available to the senior notes.

S&P has raised its default rate assumption to 3% from 2.75% on the 2020-B Navient trust transaction it rated earlier this year.

About 3.17% of the securitization pool included loans with existing forbearance agreements, according to the ratings agencies.

Proceeds from the bonds will be used to acquire $831.27 million in private student loans.

Underwriters of the transaction include Barclays, Bank of America, JPMorgan, RBC and Credit Suisse.

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