SMB Asset-Backed Repackaging Trust is preparing to price $68.4 million in securitized bonds, a securitization of available portions of the residual interest notes from two outstanding SMB Private Education Loan Trust deals, the series 2020-PT-A and the 2020-PT-B.
The underlying deals were underwritten under Sallie Mae Bank's Smart Option student loan program, and the residual cash flows are net of a range of fees, note interest and note principal, according to ratings analysts at DBRS Morningstar. The capital structure from the two deals have reached their specified overcollateralization levels.
This skimming of cashflows into a new M tranche is wrapped in a reserve account funded by excess spread for credit enhancement, DBRS said. The rating agency assigns an A to that tranche.
Sallie Mae Bank is sponsoring the deal, while SMB Education Funding is the depositor and Deutsche Bank National Trust is the transaction's indenture trustee and paying agent, DBRS said.
SMB Asset-Backed Repackaging Trust, 2024-R1 will begin repaying investors on April 26 and had a final maturity date of Sept. 15, 2054, DBRS said.
DBRS did not rate the notes on the two underlying outstanding deals, the rating agency said, but it modeled each one and generated stressed cashflow assumptions, based on a proposed A rating on the class M notes. Because of the M class notes' reliance on excess spread for credit enhancement, accelerated prepayment speeds could deprive the tranche of proceeds and endanger repayments.
The collateral underpinning this new issuance has a cutoff date of February 29, the rating agency said.
There are four risk events that could stop cash flow into SMB 2024-R1's deal. The two underlying transactions could fail to keep maintaining specified overcollateralization targets—until the deal is cured; a cash shortfall stymies principal distribution; the deals do not exercise the optional clean-up call and a default.
High quality collateral that can keep strong cash flows to the deal appears to be critical to SMB 2024-R1's success, and DBRS notes several strong aspects of those underlying loans. Smart Option loans typically have significantly lower default rates as compared with the Signature loans that the Bank had previously originated proper to mid-2009.
On a weighted average basis, the loans have a FICO score of 739, and 93% of them are co-signed. Just 15.4% of the loans require an interest-only payment whole the borrower is enrolled in school, and about 31.2% require a fixed monthly payment of $25 in school.
