The state of New Jersey’s Higher Education Student Assistance Authority (HESAA) is issuing $286.37 million in student-loan revenue bonds, to be backed by a pool of loans underwritten and serviced by the state’s postsecondary financial assistance body.
The Series 2019 revenue bonds will be issued through a 17-tranche capital structure transaction, with preliminary Aa1 ratings for all but a single subordinate tranche by Moody’s Investors Service.
The new series is rated below the Aaa rating Moody’s assigned HESAA’s previous issuance in 2018, due to lower levels of enhancement supporting the note structure, according to the agency.
The collateral will include $147.3 million in well-seasoned loans that were part of HESAA’s 2009 issuance, as well as up to $155 million in new loans that the trust will originate through an Oct. 31, 2020 prefunding and recycling period for the next academic calendar year.
Moody’s states the loans to be acquired during the prefunding/recycling period will be “high-quality collateral,” similar to loans already acquired by the trust with a weighted average FICO credit score of 742 at origination, with nearly 87% with co-signers or co-borrowers. The pool will have a very low exposure to for-profit schools of only 2.2%, minimizing exposure to the high default risks associated with those institutions, according to Moody’s.
The identified loans have an outstanding principal balance of $14,571, with a weighted average annual interest rate of 8.38%. The remaining terms are 132 months.
The deal's initial overcollateralization is 3.53%, lower than the 4.85% in investor protection afforded HESAA's 2018 triple-A rated issuance.
The pool will consist of undergraduate fixed-rate loans, graduate loans, refinanced loans and consolidation loans. The loans are underwritten to New Jersey College Loan to Assist State Students (NJCLASS) guidelines that must be met by borrowers or co-signers, such as minimum income levels, a minimum 670 FICO (with detailed credit history review).
About 20% of the 2009 loans have FICOs below 670 since they were issued before the HESAA tightened underwriting guidelines in 2012. But the 2009 loans being transferred to the trust are loans with approximately 80 payments of history, and “are past their peak default periods, which typically occur three to five years after the loan enters repayment,” according to Moody’s.
None of the existing loans in the pool are enrolled in New Jersey’s new Household Income Affordable Repayment Plan (HIARP), which allows for borrowers to reduce maximum monthly payments to 15% of the household income beyond a 150% threshold over federal poverty guidelines. Under HIARP, repayment terms can be extended out to 25 years, with any remaining principal forgiven after that period.
