Education Investment Group (EIG) and Byte Consulting have teamed up to create a library of student loan ABS deal models and a portfolio monitoring tool.
EIG/Byte has engaged several clients that are currently evaluating the student loan models. The venture expects to model all outstanding student loan ABS, such as auction rate securities as well as master trust deals over the next several months, starting its focus on the Sallie Mae, Nelnet, First Marblehead, and Student Loan Corp. offerings.
Additionally, EIG/Byte plan on modeling all new student loan ABS transactions that come to market.
According to our estimates, there are approximately $400 billion in outstanding student loan ABS and ARS transactions. Robust analytical tools in the student loan securities space have been sorely lacking and we aim to fill this void, said Guido van der Ven, co-founder of EIG. Today, investors in student loan securities must not only monitor the credit performance of the underlying loans in the structure but must also analyze the impact of CP/Libor rate spreads, failed ARS and reset rate notes, prepayment speeds, issuers no longer exercising clean-up calls, deferment/forbearance activity and borrower benefits on the security and overall capital structure.
One of the critical assumptions made before the credit crises was that student loan bonds are government guaranteed and very little analytics needed to be done. As we have found out, the underlying collateral is government guaranteed, but the structures can add significant risk to the bond holders said Paul Joshi, vice president at Byte Consulting.
EIG/Byte intends to offer these student loan models on a subscription basis with pricing depending on how many different transactions clients have in their portfolio.
The deal models will support the following functionalities:
All publicly issued transactions plus 144A deals from Sallie Mae, Nelnet, First Marblehead and Student Loan Corp. These will be updated on a monthly/quarterly basis as new trustee reports are issued.
Project cash flows on any given security based on specific client-driven assumptions, such as interest rates, CP/Liborbasis, pre-payments, losses, deferments/forbearances and borrower benefits.
The ability to set up a transition matrix allowing borrowers to move between re-payment, deferment, and forbearance
The ability to view all student loan and trust details aside from specific security cash flows
The models can handle an unlimited number of replines and loan level data as appropriate
Breakeven analysis for various assumptions
The model will produce several standard graphs: interest rates, parity trigger, tranche amortization, reserve fund/residual balances, and credit enhancements
Allows the user to save up to 10 different default, prepay, interest rate scenarios for future use
Imbedded macros will allow the user to export cash flows, graphs, and other deal details to a separate excel sheet
The application also allows clients to perform various portfolio optimization and risk management functions
