Student Loan Marketing Association (Sallie Mae) is in the market with its first-ever private credit student loan transaction, a $727 million deal via Merrill Lynch. Unlike Sallie's typical ABS, which is backed by loans guaranteed by the Federal Family Education Loan Program (FFELP), the loans in SLM Private Credit Student Loan Trust 2002-A do not feature any government guarantees. This is also the first time SLMA is offering classes rated below the single-A level.

The trust is backed by loans originated in four separate programs: LAWLOANS (20.2%), MBAloans (15.3%), MEDLOANS (14.9%), and Signature (49.6%). The programs were designed for students whose borrowing needs exceed the maximum amount offered through the FFELP program. As implied by their names, the programs make loans to law students, MBA students, and medical students. The Signature program is the only of the four available to undergraduates.

However, unlike FFELP loans - which are not underwritten and generally available to anyone - the private credit loans are underwritten to specific criteria. In all but the MEDLoans, the borrower must have a FICO score of 700 or better (prime), and is subject to debt-to-income tests. The MEDloans program employs a judgmental underwriting process.

"These loans have a much better credit profile than what you would get on an average diverse FFELP pool," said Andrea Murad of Fitch Ratings during an investor conference call. Fitch expects the cumulative default rate to be in the high single digits. That said, because the loans don't benefit from the triple-A guarantee for 98% of the defaulted principal and the accrued interests, loss severities on the loans would be substantially greater than in FFELP pools. Although the loans were originated with a HICA guarantee, the insurance does not apply once the loans are purchased by the trust for the securitization.

For the portion of the pool indexed to the 91-day T-bill, the transaction features a basis swap agreement with Merrill Lynch Derivative Products. The floating rate notes are indexed to three-month Libor.

The transaction is structured in four parts. As of press time, the $340 million, triple-A, 2.5-year A1 class was being price talked at three-month Libor plus 13 area; the $328 million, triple-A 9.4-year A2 class was being talked at three-month Libor plus 37 to 40; the $23.74 million, single-A, 8.19 year B class was being talked at three-month Libor plus 85 area; and the $34.7 million, triple-B, 6.89-year C class was being talked at three-month Libor plus 165 to 175.

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