Santiago Sponsor is preparing its inaugural securitization of asset-backed securities (ABS), raising $1 billion backed by private student loans, through an arrangement where Discover Bank originated and acquired the loans in the pool, and Nelnet Servicing is servicer and administrator.
Underlying loans are highly seasoned and exposed to minimal fixed-to-floating interest rate risk, according to Moody's Ratings. The deal will sell notes through five tranches of A, B, C and D notes. Almost all the tranches will sell fixed-rate notes, while the A1B notes are benchmarked to the one-month Secured Overnight Financing Rate (SOFR), according to Moody's and Morningstar | DBRS.
All notes have a legal final maturity date of March 15, 2057, according to Moody's.
The A1A and A1B tranches benefit from 15.46% in total initial hard credit enhancement, according to Moody's. The credit enhancement also includes a reserve fund equaling 0.25% of the pool balance. Moody's added that classes B, C and D have total initial hard credit enhancements of 6.8%, 3.6% and -2.7%, respectively.
Otherwise, subordination, reserve accounts and excess spread provide credit enhancements to the notes, DBRS.
BofA Securities, Barclays Capital, and Citigroup Global Markets lead a group of initial purchasers on the deal.
Among NSLT 2025-A's credit strengths, the underlying loans have a weighted average (WA) credit score of 756, which is slightly lower than the WA score at origination. Also, about 81.3% of the pool is currently co-signed by high-quality borrowers, Moody's said.
Almost all the loans in the collateral pool, 92.5%, were extended to borrowers attending four-year schools, and the same percentage was made to borrowers attending not-for-profit schools. Loans in the latter group have defaulted at historically lower rates than loans made to students enrolled at for-profit schools, DBRS said.
Borrowers are 31 months deep into the repayment process on a WA basis, according to DBRS. This seasoning gives Nelnet 2025-A loans a lower chance of default, because historically, those borrowers who are earlier in the loan repayment process default at higher rates, the rating agency said.
DBRS assigns AAA to both A classes; AA, A and BBB to the B, C and D tranches. Moody's assigns Aaa to the A notes.
