New Jersey is adding to this year’s mix of private student loan securitization.
The state’s Higher Education Student Assistance Authority is planning to issue $180 million of bonds to fund the purchase of new loans over the next year and a half, according to a presale report published by Moody’s Investors Service.
The HESAA Student Loan revenue Bonds, Series 2015-1 will issue $180 million across 18 senior and subordinated tranches of fixed-rate bonds maturing between 2016 and 2044; sizing of the individual tranches has yet to be determined. Moody’s has assigned a preliminary Aa2’ rating to the senior tranches and an A2’ rating to the single subordinate tranche.
New Jersey follows on the heels of Rhode Island and Iowa, which have tapped the market this year with $41.4 million and $40.7 million of revenue bonds, respectively. (Iowa’s deal is backed by a mix of private and federally guaranteed loans). Sallie Mae also issued $704 million of notes backed by existing student loans.
All of the loans to be acquired will be originated under the NJCLASS program, which requires either the borrower or the co-signer to have annual income of $40,000, and a FICO of at least 700 or 670 (for those with a detailed credit history. According to Moody's, these loans are less risky than similar collateral backing other deals, because it is easier for lenders to recover principal when borrowers defaults.
“Certain statutorily authorized powers utilized by HESAA and granted by the State of New Jersey, such as wage garnishing, drive the higher recovery rates relative to other private student loan pools,” the presale report states.
So while the rating agency expects that approximately 9.2% of the loans will default over the life of the deal, it expects bondholders to recover 70% of that, despite the fact that these loans are unsecured. As a result, Moody's expects net losses of just 2.8%, which it said is lower than expected losses on deals backed by loans in jurisdictions where lenders cannot garnish a borrowers wages.
The HESAA’ trust currently has some $538.7 million of existing loans and $88.5 million of funds raised in 2014 that have yet to be put to work and is available to originate additional loans until October 1, 2015.
The Series 2015-1 bond origination schedule requires $60 million of loans to be originated by February 1, 2016, a total of $110 million of loans to be originated by July 1, 2016, with the remainder of approximately $65.9 million of the loans to be originated by October 1, 2016.
Principal collections from the 2015-1 student loan pool may be used to originate loans throughout the “recycling” period which also ends on October 1, 2016. S&P expects that recycling will result in an additional acquisition of approximately $7.7 million of loans.