The New Hampshire Higher Education Loan Corp. (NHHELCO) is readying $141.3 million of securities backed by a pool of older private student loans that have experienced high default rates, according to Moody’s Investors Service.

Proceeds will be used to refinance securities issued via two transactions in 2011.

NHHELCO will be the master servicer, Granite State Management & Resources is the subservicer, and Nelnet Servicing is the back-up servicer.

RBC Capital Markets is the initial purchaser.

EDvestinU Private Education Loan Issue No. 1 will issue three tranches of variable rate notes with preliminary ratings from Moody’s: $118.5 million of ‘Aa2’ rated class A notes with a final maturity of November 2035; $14.3 million of ‘A3’ rated class B notes due in April 2037; and $8.5 million of ‘Baa2’ rated class C notes due December 2038.

As of Oct. 31, approximately 81% of the loans in the loan pool are in repayment and these borrowers have made 69 payments on a weighted-average basis. NHHELCO originated most of these loans via its TREE (26% of collateral) and LEAF (62%) programs, which have weaker underwriting than its EDvestinU program (12%). For example, the TREE program did not have a minimum FICO score for borrowers. And neither the TREE nor the LEAF Programs had minimum income requirements.

The weighted average borrower interest rate is 4.17%, the weighted average outstanding balance is $13,282, and the weighted average recent FICO score is 739.

Loans originated under both programs have experienced between approximately 10% and 18% gross defaults within the first five years of repayment. According to Moody’s, the early defaults outweigh the impact of amortization.

The EDvestinU program has stronger underwriting criteria, including a minimum FICO score of 750 for loans that are not co-signed, and a minimum adjusted gross income requirement. However it was only launched as a pilot program in 2013 and launched as a formal program in July 2015, so there is little performance history.

To help offset these risks, the new transaction offers several credit enhancements. The senior class A notes have initial credit enhancement of 29.7%, And the deal has a full-turbo structure, which allocates principal to the senior class outstanding until it is paid in full. Class B notes and Class C notes will not receive principal until Class A notes are paid in full. Class C notes will not receive principal until Class B notes are paid in full. Excess funds will only be released at the bottom of the waterfall after the principal balance of the notes is paid in full. 

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