SMB Private Education Loan Trust is coming to market again to raise $401 million in student loan asset-backed securities (ABS), secured by loans underwritten through Salle Mae Bank's Smart Option Student Loan Program.
Bank of America is managing the deal, according to Asset Securitization Report's deal database, while Moody's Investors Service says Goldman Sachs & Co., Barclays Capital, RBC Capital Markets and J.P.Morgan securities are initial note purchasers.
The transaction will issue notes from two fixed-rate classes and one floating-rate class, and repay investors through a sequential structure. Over time SMB Private Education Loan Trust will increase its credit enhancement to the notes, because the transaction will use all of its excess spread to turbo the notes until the deal's overcollateralization amount for classes A and B reach a specified amount. That amount should be the greater amount of either 20% of the outstanding pool balance or 11.0% of the initial pool balance. Also the deal will benefit from a non-declining reserve account.
The collateral loans are considered high credit quality, with higher FICO scores, borrowers who choose to make payments while they are still in school, and a higher portion of co-signers, according to Moody's.
Another credit strength, according to Moody's, is that SMB 2023-A wouldn't be exposed to any basis risk between prime and Libor, because the loan pool doesn't contain any loans indexed to the prime rate.
Its better credit quality notwithstanding, SMB Private Education Loan Trust has several credit challenges, according to Moody's. For one the deal has an exposure to fixed-to-floating interest rate risk because 75%-88% of the total notes are pegged to a fixed rate benchmark, while just 57% of the loans are fixed rate.
Moody's expects to assign ratings of 'Aaa' to the fixed-rate, class A-1A notes and the floating-rate class A-1B notes. Similarly, Morningstar | DBRS will assign ratings of 'AAA' to the class A-1A and class A-1B notes; and 'AA' to the class B notes.
