Private student loans underwritten under the Smart Option student loan program from Sallie Mae Bank will secure $618 million in asset-backed securities (ABS) being sold to investors.
The deal will issue three tranches of notes—A1A, A1B and B—that bear fixed and floating interest rates, with the latter indexed to the 30-day average Secured Overnight Financing Rate (SOFR) according to ratings analysts at Morningstar DBRS.
The rating agency added that the underlying variable-rate loans were underwritten to the Chicago Mercantile Exchange (CME) Term SOFR or the average SOFR. Also, SMB 2026-A will not engage rate hedging arrangements with respect to the rated notes or the student loans in the trust, the company said.
SMB 2026-A will repay noteholders sequentially. Also, the class B notes will not receive any principal until the class A notes are fully repaid. All the notes have a final maturity date of December 15, 2053.
Bank of America Merrill Lynch, Barclays, Goldman Sachs, JP Morgan Securities and RBC Capital Markets are managing the deal, according to Asset Securitization Report's deal database.
DBRS and Moody's assign AAA/Aaa to both the A1A and A1B tranches; and DBRS assigns AA to the class B notes.
SMB 2026-A's deal structure includes a specified reserve account balance equaling 0.25% of the initial pool balance at closing, DBRS said. Meanwhile, the class A notes have initial subordination of 8.58% from the class B notes.
The more junior class A notes and the subordinate class B notes get credit protection through overcollateralization of 13.09% and 4.93%, respectively.
Also, the three tranches have an initial overcollateralization of 4.93%, DBRS said.
There is also a turbo provision, where all available funds after paying senior transaction fees, note interest and some shortfalls will be used to pay principal on the class A notes until the trust receives a specified overcollateralization amount, DBRS said.
If the trust does reach its specified overcollateralization amount, then class A notes will revert to full turbo mode of the pool balance is 10% of the initial pool balance or less, the rating agency said.
Also, if the outstanding principal in class A exceeds the outstanding pool balance, then all the remaining available funds, after paying transaction fees and note interest will be applied to pay down the principal of those tranches.
