Nelnet is marketing its first securitization of federally guaranteed student loans of the year, according to rating agency reports.
The deal, Nelnet Student Loan Trust 2016-1, will issue a single, $426 million tranche of notes rated triple-A by both Fitch Ratings and Moody’s Investors Service. One quarter of the loans were once delinquent but are now making timely payments. These loans tend to redefault at a higher rate than loans that have never defaulted, but they benefit from the same guarantee from the Department of Education of at least 97% of the principal and interest.
Fitch assumes a base case default rate of 19.75% and a 47% default rate under the ‘AAA’ credit stress scenario. The claim reject rate is assumed to be 0.25% in the base case and 2.0% in the ‘AAA’ case.
Nelnet has not securitized Federal Family Education Loans since Fitch and Moody’s revised their ratings criteria for the sector to account for the large number of borrowers taking advantage of generous repayment programs. This has put many bonds at risk of not paying off by their legal maturity.
The 2016-1 Series has a much longer tenor than previous Nelnet securitizations; the notes mature in 2065.
Based on 10 years of performance data that Nelnet provided on the collateral pool, Fitch expects that 9.75% for the nonrehab loans and 50.3% of the rehab loans will default, with a weighted average default rate of 19.75%.
