Sallie Mae is returning to the securitization market for the first time this year with a $585 million offering of bonds backed by private student loans.
SMB Private Education Loan Trust 2017-A (SMB 2017-A) is Sallie Mae Bank’s eighth term asset-backed securities (ABS) transaction and the seventh transaction in which Sallie Mae Bank will be the servicer. The collateral backing the transaction will consist exclusively of private student loans originated and underwritten by Sallie Mae Bank under the Smart Option Student Loan Program. Smart Option loans do not benefit from a guarantee from the US government.
Three tranches of senior notes with preliminary Aaa ratings from Moody’s Investors Service will be issued: $212 million of floating-rate notes with a legal final maturity of June 2024; $162 million of fixed-rate notes due in September 2034; and another $162 million of floating-rate notes due in September 2034. There is also a $40 million subordinate tranche of note due in June 2041 with a preliminary AA3 rating.
Credit enhancement for the senior notes consists of 10.8% overcollateralization, 6.1% subordination of the AA3 rated notes, and a 0.25% reserve account. Also, the excess spread, or the differential between the interest paid on the notes and the interest collected on the underlying loans, is between 5% to 9% a year.
Credit Suisse, J.P. Morgan and RBC Capital Markets are the initial purchasers.
Similar to Sallie Mae's previous transactoin, the loans used as collateral have a weighted average interest rate of 8.39%, an average outstanding principal balance of $11,727, and weighted average 131 remaining months until maturity. Just over 90% of the loans have co-signers.
A slightly lower percentage of borrrowers (65% vs 70%) are in school, grace, or deferment, and so have yet to begin repaying their loans.
Moody's expects the collateral pool to experience cumulative losses of 10% over the life of the deal.
The presale report contains the usual caveat that Sallie Mae, which has only been servicing its own loans since 2014, after separating from Navient, does not always collect on defaulted loans. Some loans that default may be sold to a third party at a significant discount.