Rhode Island Authority Issuing $50M in Student Loan Bonds

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The Rhode Island Student Loan Authority (RISLA) is issuing $50.26 million in new revenue bonds whose proceeds will fund non-guaranteed loans RISLA will underwrite to higher-quality credit applicants.

Fitch Ratings and Standard & Poor’s have each issued preliminary double-A ratings to the new 2017 senior series A bonds that are split among 11 classes of notes with varying maturities, according to presale report published Monday.

The fixed-rate, tax-exempt bonds represent the ninth issuance by RISLA since 2009. They will be issued on parity with equal rights and claims as existing notes in the series.

The bonds' proceeds will fund about $54.8 million in new fixed-rate private loans through Feb. 1 of next year (and at least $22.35 million by Sept. 1, 2017). RISLA has approximately $235 million in loans the master trust, which have an overall expected cumulative default rate of 9%-10%, according to S&P.

S&P assigned an estimated loss rate of 3.5-4.5% for the new bonds, while Fitch assigned a base case default rate of 5%.

The collateral loans to be originated to back the bonds will have to meet several eligibility requirements. The pool must have no fewer than 97% of the loan co-signed, with co-borrowers carrying a weighted average FICO of 725. 

No more than 70% will be eligible for deferrement while a student is in school; with at least 30% pooled from the immediate-repayment program that allows borrowers to begin paying back loans within 60 days after dispersement, rather than deferring to a post-enrollment payment program.

Ratings support for the new issuance will include a 16.5 overcollateralization level and an initial parity level of 119.76% (or the percentage of total assets compared to the total amount of outstanding bands).

The approximate $50 million in loans being added to trust have been or will be originated under the RISLA fixed-rate loan programs for which a minimum FICO score of 680 is held by borrowers and co-signers. S&P reports the weighed average FICO for the $235 milliion in loans in the RISLA managed portfolio is 767, with all loans originated through the school channel.

The transaction is expected to close May 18. Bank of America Merrill Lynch is the underwriter.

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