Nelnet’s first federally guaranteed student loan securitization in almost a year is backed primarily by consolidation loans.

A single, $535 million tranche of notes with preliminary triple-A ratings from Fitch Ratings and Moody's Investors Service will be issued in the deal, dubbed Nelnet Student Loan Trust 2017-1. The notes have a legal, final maturity of 2065 and benefit from 3.75% overcollateralization.

BMO Capital Markets, Citigroup Global Markets, and RBC Capital Markets are the initial purchasers.

Loans consolidating other FFELP loans account for 88.4% of the collateral, according to Fitch. By comparison, Nelnet’s previous FFELP securitization, completed in September, was backed by primarily by Stafford loans to undergraduates. (Nelnet also completed a private student loan securitization, in December.) 

Not surprisingly, the average borrower indebtedness of $25,100 is significantly larger than the $8,485 average for the previous deal. The weighted average remaining term is also longer, at 182 months, versus 96 months. Consolidation loans have longer terms than undergraduate loans.

Anohter distinction: only 10% the loans were once delinquent but are now making timely payments. That's down from roughly a quarter in Nelnet's three previous FFELP securitizaitons. In its presale report, Fitch noted that these loans tend to redefault at a higher rate than loans that have always been current. Partially offsetting this risk, however, is the fact that the Department of Education tends to reject fewer claims on redefaulted loans.

Fitch assumes that over one-fifth (22.75%) of the loans in the overall pool will default, and that just 0.25% of claims for reimbursement will be rejected, in its base case scenario.

Day-to-day servicing is provided by Pennsylvania Higher Education Assistance Agency and Nelnet Education Loan Network.

Fitch’s presale report does not indicate how or when Nelnet, the nation’s second largest student loan servicer, acquired the FFELP loans used as collateral. The company has said it is looking to opportunistically add to its holdings of loans made under the FFELP, which was discontinued in 2010. However its first quarter financial reportb, published last week, does not disclose any major purchases.

That’s in contrast to Navient, the largest servicer, which recently agreed to acquire a multi-billion dollar portfolio from a major bank and has made several trips to the securitization market this year.

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