NelNet plans to issue $566 million of securities backed by loans originated under the Federal Family Education Loan Programs, according to presales from Fitch Ratings and Moody's Investors Service.
The transaction, NSLT 2015-1, is backed by a pool of 100% FFELP loans, including 19.5% of rehabilitated FFELP loans. Rehab loans are those that are currently perfoming after having defaulted at some point. Specifically, to be rehabilitated the student loan borrower must make at least nine timely payments within a 10-month period. Although these loans exhibit much higher default rates than regular FFELP loans, they benefit from the same government guarantee.
Fitch and Moody’s plan to rate $443 million of floating rate class A notes AAA’/ Aaa’ and $13 million of floating rate class B notes, A+’/ Aa1’. Since FFELP student loans are indirectly guaranteed by the U.S. Department of Education the ratings on the bonds move in tandem with the U.S. sovereign rating.
Banks are winding down their portfolios of FFELP loans as evidenced by large block sales. On Feb. 3rd, Bank of America announced plans to sell its $2.4 billion portfolio of FFELP loans. The two strongest and most competitively positioned bidders may be Nelnet, which last year acquired CIT"s student loan business for $3.6 billion, and Navient, the largest student loan holder and servicer, which split off last year from now-private lender Sallie Mae. Navient acquired Wells Fargo’s $8.5 billion portfolio of FFELP loans last November.
At the ABSVegas securitization industry conference last week, speakers on a student loan panel said these loans may potentially find their way back into securitizations.