Navient has launched its sixth private student loan securitization refinancing of 2021, this time with borrowers substantially in the medical, business and legal fields in large cities — a concentration that is both a boon and a risk.
The deal is split into a $700.7 million tranche rated ‘Aaa’ by Moody’s Investors Service, and a $39.5 million unrated portion, both fixed-rate.
A similarly structured if somewhat larger deal from Navient was priced in September, at spreads of 57 basis points over swaps and 95 basis points over swaps on the AAA and AA tranches, respectively. The pricing was at the low end of or just below guidance on each piece.
The deal will be sponsored, serviced and administered by Navient Solutions, LLC, while Navient Credit Finance Corporations, Blacksburg Funding, LLC, VL Funding LLC, and Shenandoah Funding LLC will be the sellers. Earnest Operations LLC is the originator.
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One downgrade stemmed from a default, with three others warning of pending defaults.
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FFELP, Stafford consolidation loans comprise the bulk of the collateral in the transaction.
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A high representation of working professional degree holders among borrowers, most notably, medical doctors, boosts confidence in the underlying collateral.
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The borrowers are concentrated in high-paying fields, but they may still be affected by industry-specific economic cycles, according to a recent pre-sale report by Moody’s. For instance, a fifth of borrowers in the Navient Private Education Refi Loan Trust (NAVI) 2021-G has medical degrees. However, healthcare workers recently had a large spike of loans in forbearance in refinanced ABS deals, because elective medical procedures were briefly suspended during the pandemic, Moody’s said.
The borrowers in the loan pool have a weighted average credit score of 766, monthly free cash flow of $4,698, and an annual income of $135,684. The average outstanding principal balance per borrower is $69,192.
Moody’s expects the NAVI 2021-G notes to have a weighted average life of 3.7 years, which is less than typical student loans that have a weighted average life of four to eight years. The shorter loan terms means that they will have less risk exposure to economic downturns.
Navi 2021-G is almost all fixed-rate loans, with only 1.2% of one-month Libor loans and 0.4% of SOFR loans, the report said.
The report said that this ABS deal carries social risk because student-loan debt is a hot topic in the country, and potential regulatory or legislative changes could result in discharging the student loans of borrowers in financial hardship, leading to lower recovery rates and higher defaults.
In addition, government relief programs and payment plans to lessen borrower debt burdens increase the maturity risk in private student loan ABS, Moody’s said.
