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Nelnet returns with $420M securitization of all-rehab FFELP loans

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Nelnet is returning to the securitization market with a $420.1 million pool made up entirely of formerly delinquent federally insured loans, according to S&P Global Ratings.

The loans were issued under the former Federal Family Education Loan Program (FFELP) loans.

Nelnet Student Loan Trust 2019-2 is the second of the year for Nelnet, which priced the $497 million, NSLT 2019-1 transaction of FFELP loans in February. That deal had just 19.8% of its pool tied to formerly delinquent loans that have been rehabbed back into current status, according to S&P.

For a delinquent loan to gain rehabbed status, borrowers much make at least nine consecutive timely payments.

Still, these rehabbed loans have a traditionally high redefault rate; S&P has an expected cumulative default rate of 45% for the deal. In Nelnet’s prior transaction, the 80.2% non-rehab collateral had an expected default rate range for those loans was 12%-13%.

It is the first time in two years Nelnet is pooling together a portfolio with 100% rehabilitated loans.

The transaction is also top-heavy in consolidated FFELP loans, making up 69.3% of the collateral pool balance compared to just 30.2% in the first deal of the year – which was composed mostly of Stafford program loans (63.8%).

The transaction includes loans from 16,210 borrowers with an average outstanding balance of $25,920. The aggregate principal amount is $420.2 million. The loans have an average remaining term of 196 months (approximately 16 years).

The transaction includes a planned $405 million Class A note tranche with a preliminary AA+ rating from S&P Global Ratings. The Class B tranche is rated AA, with an early AA rating. Both tranches have yet to price.

S&P has had an AA+ ratings cap on the senior notes due to the agency's partial reliance on the AA+ long-term sovereign rating of the U.S. federal government in its cash-flow modeling. The FFELP loans securing the transaction are supported by the U.S. Department of Education, which backs the loans by reinsuring 97% of the principal and accrued interest of any defaulted obligation.

S&P says the new transaction has a new turbo feature, which accelerates the paydown on the Class A notes should the balance of the notes exceed a certain level after three years.

Nelnet has the third highest ABS issuance among servicers of private student loans this year, with 11% of the year-to-date securitization volume of $4.8 billion through April 18, according to Deutsche Bank.

Nelnet is one of four private organizations that administer the vast majority of outstanding loans from the FFELP program that was discontinued in 2010 when the Education department began directly issuing federal student loans.

Underwriters on Nelnet’s new deal include RBC, Citigroup, Barclays, BMO, Goldman Sachs, Bank of America Merrill Lynch and Pierce, Fenner & Smith.

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Student loan ABS Nelnet