High quality, highly seasoned student loans is securing a $1.6 billion asset-backed securities transaction from Nelnet, in a deal that will provide proceeds to fund its ongoing business.
Goldman Sachs & Co., Bank of America Securities, Inc., and Citigroup Global Markets, Inc., are among six initial note purchasers on the deal, Nelnet Student Loan Trust 2021-C, according to Moody’s Investors Service. Nelnet Servicing, LLC, and Wells Fargo Bank are servicer and originator, respectively.
The collateral is made up of private consolidation loans and private student loans that Wells Fargo, another initial note purchaser, had originated. About 85% of the deal is co-signed loans to high quality borrowers, Moody’s said.
Borrowers on the underlying loans are of high credit quality, Moody’s said. On a weighted average (WA) basis, borrowers had a WA credit score of 773. A majority of the borrowers have been making payments for three years, and 76% of the pool has about five years of seasoning.
The capital structure is built on a sequential pay setup. The transaction will use all excess spread to power the notes until its overcollateralization amount reaches 2.0% of the pool balance. Through this method, credit enhancement will grow over time, according to Moody’s. Also, the class A reserve account will be non-declining.
Not every aspect of the Nelnet 2021-C transaction gets excellent marks, because of a couple of interest rate risks. First, 59% of the notes in the trust are expected to be fixed-rate at closing, with 47% of the notes being floating rate. Also, 98.6% of the floating rate loans are indexed to prime, and floating rate notes are also indexed to the one-month Libor. NSLT 2021-C did not enter into a fixed-floating swap or a basis swap agreement at closing, Moody’s said.
Moody’s noted social risks in the deal, aside from interest rate concerns. The notes have a legal, final maturity of April 2062. They carry an elevated maturity risk, however, if forbearance, interest rate reductions and term extensions to alleviate borrower debt burdens continue.
Moody’s expects to assign ‘AAA’ ratings to the floating rate $667.9 million class A-FL notes, and the fixed-rate class A-FX notes. Moody’s did not rate the remaining three classes of notes.
