The performance of Rhode Island Student Loan Authority's outstanding bonds has been stable enough that Fitch has lowered its default expectations, slightly, for the latest issuance of $75 million of tax-exempt private student loan bonds.
Nevertheless, RISLA is paying slightly more, in terms of credit enhancement, for the same double-A ratings from both Fitch and S&P Global Ratings.
The 2018 series is the 10th issuance out of a master trust created in 2009. Proceeds will be used to fund up to $55 million of new, fixed-rate student loans and repay the remaining $17.6 million of outstanding notes issued from a 2008 master trust and purchase the underlying portfolio.
RISLA has until September 2019 to fund the new loans, which will be a combination of student and parent loans that enter repayment immediately and loans with payments that are deferred while students are still in school. Over 97% of the loans currently in the master trust are co-signed with minimum FICO score of 680.
Seven tranches of 2018 Series will be issued with maturities ranging from 2020 to 2034; all benefit from 17.1% credit enhancement. That’s up from 16.5% credit enhancement for the previous issuance, in 2017, according to Fitch's presale report.
The 2018 bonds maturing between 2020 to 2025 cannot be redeemed ahead of maturity; however, a tranche maturing on Dec. 1, 2034 ( known as a "super sinker" bonds), can be redeemed using excess revenues in the trust.
RBC Capital Markets and Merrill Lynch, Pierce, Fenner & Smith are the underwriters.
Following the issuance of the new notes, there will be $252.3 million of loans collateralizing the 2009 master trust, primarily due to the acquisition of the collateral from the 2008 trust; the balance will rise as new loans are funded.
Despite the revolving nature of the master trust, the portfolio composition and characteristics have been relatively stable, according to Fitch. In fact, the rating agency has lowered its default assumptions as a consequence of the continued strong performance. It now expects 4.25% for the immediate repayment loans (including parent loans and refinance loans) and 7% of deferred loans to default, resulting in a weighted average portfolio default rate of 6.3% over the life of the transaction, in its base-case scenario. The rating agency puts recoveries on defaulted loans at 50%.
S&P expects cumulative losses to be slightly higher, somewhere in the range of 3.5% and 4.5%.
Liquidity support for the transaction will be provided by a $9.9 million debt service reserve fund sized at 3% of the outstanding bond balance, with a minimum balance of $3 million, or 1% of initial bond balance. Fitch believes that this is sufficient to cover six months of payment of interest and senior expenses.
In its presale report, Fitch noted that there are limited performance histories for parent loans and refinance loans, since RISLA only started to originate these loans in 2014. Based on their FICO distribution and early performance read, however, Fitch deems these loans to have credit quality similar to or potentially better than immediate repayment loans.