The Rhode Island Student Loan Authority is marketing $41 million of bonds backed by private student loans to residents and borrowers studying in the state.
Bank of America Merrill Lynch is the lead underwriter.
Standard & Poor’s has assigned a provisional A+’ rating to the notes, on par with RISLA’s outstanding student loan revenue bonds.
This is RISLA's seventh issuance out of the Senior Series A Student Loan Program Revenue Bonds master trust, which was created in 2009. RISLA will issue the 2015 bonds on parity with the previously issued bonds from this trust. Proceeds will be used to originate loans to be disbursed in 2015 and 2016, refinance existing RISLA private student loans, and to make a deposit into the reserve account, according to S&P’s presale report.
RISLA expects the new loans to have similar characteristics to its most recent loan originations. The trust will use excess cash not required to pay interest and scheduled principal to optionally redeem the bonds until the trust reaches a 121.0% target parity. As long as the target parity is maintained, the trust may release cash to RISLA. However, on and after June 1, 2020, the trust will use all excess funds to redeem trust bonds. This turbo feature locks out releases to the issuer, and S&P expects it to increase overcollateralization and parity during the transaction's later stages.
A reserve account at closing of $6.780 million, which is 3.36% of the outstanding bond principal amount, will further support the trust's bonds.
Program guidelines require that a borrower or co-signer have a minimum FICO credit score of 680 and minimum income of $40,000. S&P expects the loans in the trust to reflect the high credit quality of RISLA's current portfolio of fixed-rate loans, which have a weighted average FICO score of 767 and a co-signed concentration of 97%. All of the loans were originated through the school channel.
Beginning the 2010-2011 school year, RISLA introduced an immediate repayment loan option whereby loan payment begins upon disbursement, while the obligor is in school. This is in contrast to the traditional deferred interest payment loans that require payment only after the student leaves school. The immediate repayment loans generally have a shorter term and lower interest rate than the deferred payment loans. S&P believes that, all else being equal, immediate repayment loans should perform better than deferred payment loans. The trust is expected to contain at least 30% immediate repayment loans.
RISLA expects to include a limited number of private consolidation loans in the 2009 indenture for the first time. These consolidation loans will adhere to the same underwriting standards currently in place for RISLA private student loans.