Nelnet Student Loan Trust is selling $1.5 billion in asset-backed bonds to investors, secured by a pool of private student loans that are well seasoned – albeit with a lower concentration of loans in active repayment compared with recent transactions.
The deal will sell the notes through five tranches of classes A, B, C and D notes, which all have a legal final maturity date of May 17, 2055, according to Moody's Ratings.
Most of the capital structure will pay fixed-rates to noteholders, except for the A1B notes, which offers floating-rate notes pegged to the one-month Secured Overnight Financing Rate (SOFR). The class A notes benefit from total initial hard credit enhancement that represents 17.86% of the note balance, according to Moody's. The credit enhancement includes a reserve fund that equals 0.25% of the note balance, Moody's said.
Classes B, C and D notes benefit from credit enhancement levels of 8.54%, 3.17% and -1.61%, respectively.
Moody's is the only rating agency assessing the deal, and the company only rated the class A notes, assigning Aaa to them.
Bank of America Merrill Lynch is leading a group of managers on the deal, which includes Barclays, Citigroup Global Markets, Mizuho Securities and SMBC Nikko Securities America, according to Asset Securitization Report's deal database.
Underlying borrowers have strong credit—they have a weighted average (WA) credit score of 755. Although this is a decrease from a FICO score of 762 at origination, because some of the loans have migrated to a weaker credit bucket, the collateral is still considered high quality, Moody's said.
The collateral is also highly seasoned, as 64% of borrowers have entered repayment. Also, 36.2% of the loans in the pool have been making payments for at least three years. Only 15.8% of borrowers are still in school, and just 3.4% are under forbearance, the rating agency said.
Yet there are several credit challenges. The deal will repay principal to the senior and subordinate notes sequentially. Also, the subordinate notes will only receive payment after the more senior notes meet their respective target enhancement levels. This could increase the average life of the senior notes and expose them to additional credit risk, Moody's said.
