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Sallie Mae's next SLABS features more borrowers in active repayment

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Sallie Mae Bank’s next private student loan securitization features slightly higher exposure than its prior deal to borrowers who have completed school and are in active repayment, according to Moody’s Investors Service.

Nearly a third of borrowers, 29.5%, backing the $500 million transaction are making timely payments, up from 27.4% for prior deal and higher than the lender’s previous two deals.

Of the remaining borrowers, 48.1% are in school, 16.7% are in a grace period after completing school and beginning repayment, 3.9% are in deferment, and 1.8% in forbearance.

The transaction, SMB 2018-C will be backed exclusively by Smart Option private student loans and the aggregate initial pool balance will be around $603,530,591. These are loans originated to borrowers with an original FICO score of at least 640 for students who attended a nonprofit school, or at least 670 for students who attended a for-profit school. In addition, the traditional loans exclude loans originated to borrowers who attended a school in any one of the top 10 defaulting for-profit school groups in Sallie Mae Bank’s portfolio.

The loans backing this transaction have a weighted average interest rate of 9.69%, an average outstanding balance of $12,685, and a weighted average outstanding term of 138 months, according to Moody’s.

Moody’s expects losses on the collateral over the life of the transaction to reach around 9.1% of the original principal balance, unchanged from the previous deal and one basis point lower than the two previous deals.

Sallie Mae Bank offers the borrowers of the Smart Option loans three different payment options while they are in school, grace or deferment: (1) interest-only payments, (2) fixed monthly payments of $25, or (3) deferred interest and principal payments.

Similar to the sponsor’s recent securitizations, SMB 2018-C will offer three classes of senior Class A notes with preliminary Aaa ratings from Moody’s, two of them floating-rate and one of them fixed-rate. There is also a subordinate tranche of fixed-rate Class B notes rated Aa2.

Credit Suisse, Goldman Sachs and J.P. Morgan are the initial purchasers of the notes.

Initial credit enhancement for senior notes lower is five basis points lower than the previous transaction at 16.7% vs 17.1, 18. It is also the lowest level for any private student loan securitization that Sallie Mae has completed since the its last deal of 2016. However, enhancement will build to the same target level of 25% as funds left over after making interest and principal due each month is used to repay additional principal.

Depending on the level of interest rates, Moody’s expects the Class A and B notes in SMB 2018-C to benefit from gross excess spread ranging anywhere from 5% to 9% per year, similar to that of six prior deals dating to late 2016.

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