The Pennsylvania Higher Education Assistance Agency is returning to the securitization market with an offering of federally guaranteed student loan bonds after a two-year hiatus.
The $432 million PHEAA Student Loan Trust 2018-1 will offer two tranches of floating-rate notes with preliminary Aaa ratings from Moody’s Investors Service: $141.5 million of class A-1 notes and $285.2 million of class A-2 notes.
The lead manager and Initial purchasers are BMO Capital Markets, PNC Capital Markets and Boenning & Scattergood, Siebert Cisneros Shank & Co.
The collateral pool is similar to that of other recent Federal Family Education Loan Program securitiations rated by Moody’s; it is a mix of 21% loans that were once delinquent but are now making timely payments and 79% loans that have never been delinquent. That’s lower than the 25% concentration of “rehabilitated” loans backing a recent transaction by Nelnet but higher than the 20% concentration in a recent deal by Navient.
Moody’s expects the rehabbed FFELP loans to experience a higher net loss rate than the non-rehabbed loans because, although the rehabilitated loans benefit from the federal guarantee, they are likely to default at a significantly higher rate than the non-rehabilitated loans.
Nearly three-quarters of the loans (72.3%) consolidate the undergradate and/or graduate debt of borrowers. The average outstanding principal balance per borrower is $14,663, the weighted average statutory borrower interest rate is 5.22%, and the WA remaining term to maturity is 154 months.
Nearly a quarter of loans (23.6%) are to borrowers in income-based repayment plans; the vast majority of these are in partial financial hardship status, which means monthly payments could be very low. The WA borrower age is 44 years.
The total use of deferment, forbearance and IBR is 36.8% compared with 32.8% for Nelnet’s deal and 38.6% for Navients. (There is limited overlap between IBR, deferment and forbearance; Moody’s excludes this overlap in its analysis of cash flow in the transaction.)
The rating agency expects gross defaults on the FFELP loan pool to be securitized is around 26.1% and the net loss is about 0.70%. Credit enhancement includes 3.85% initial overcollateralization and a 2% reserve fund. There is also the excess spread, which is the difference between interest earned on the loans and interest paid on the notes, of 0.60% to 0.80% a year.
Approximately 0.51% of the pool had borrowers in either verified/alleged death & disability status as of the statistical cutoff date; the Department of Education is obligated to make to pay off the FFELP loans of deceased borrowers and of borrowers who became totally and permanently disabled, so this kind of collateral accelerate the repayment of principal, but reduce the excess spread over the life of the transaction
