A pair of private student loan securitizations featuring pools with high-end borrowers in the post-graduate medical, legal and professional fields went to market on Wednesday.
SoFi Lending Corp. is looking to place $551.3 million in notes backed by $591.5 million in mostly refinanced higher-education loans of medical and law school graduates. Meanwhile, Darien Rowayton Bank is issuing $164.7 million in notes securitized by $188 million in loan refinancings and consolidations it originated for student borrowers with similarly strong professional earnings profiles.
Both transactions have been given provisional ratings by DBRS.
The SoFi Professional Loan Program 2016-A LLC is structured with three classes of notes, backed by both fixed-rate and variable-rate loans averaging $85,060. At the top of the stack are two AAA-rated Class A notes issues: a $133.56 million Class A-1 tranche of variable-rate loans maturing in August 2036, and a Class A-2 tranche maturing in December 2036 that totals $367.88 million in notes backed by fixed-rate borrowings. Also being issued are $49.9 million in Class B notes rated ‘BBB’.
The securitization is largely in line with the loan structures of previous SoFi portfolios, with the exception of a substantially increased volume of better-performing Parent PLUS loan program refinancings.
The tranches are supported by varying credit enhancement levels. The Class A-1 notes principal is protected up to a default level of 20.03% on the underlying loans, while the Class A-2 notes have a CE level of 13.6% and Class B notes’ CE is at 6.9. There is a separate reserve account for the Class A notes, and a liquidity account for the Class B notes. The Class B notes, excess spread and limited cross-collateralization of the pool’s loans serve as the subordination levels for the senior notes.
Like in previous SoFi securitizations – this is the company’s seventh in its short history – the borrower quality in the pool is on the upper end of the credit scale with an average FICO of 763, and a weighted average borrower income of $160,084. This securitization features a slightly lower FICO average than previous deals, but DBRS notes there are “significantly higher incomes and monthly free cash flow” from these borrowers: an average of $12,233 more salary and an added $362 in monthly cash availability.
The pool also features a substantial increase in the percentage of Parent PLUS loan program refinancings, which make of 16.4% of SoFi 2016-A’s collateral compared to 4.6% in SoFi Professional Loan Program 2015-D LLC. Parent PLUS loans are loans that were formerly issued by the U.S. Department of Education’s Federal Family Education Loan Program (FFELP) via private lenders; the program was discontinued in 2010 in favor of the William D. Ford Direct Loan Program providing student loans directly to parents of dependent undergraduate students. Parent PLUS loans and their 3.8% default rate “perform significantly better” than other federal student loan programs for four-year undergraduate degrees with default rates of 6.3%.
Of the $591.5 million in loans in the pool, $424.8 million are fixed-rate and $166.7 million are variable rate.
SoFi Lending Corp. is based in San Francisco, and has originated $4.8 billion in loans to 60,000 student borrowers and their families.
The DRB Prime Student Loan Trust 2016-A is the fifth securitization for private student loans originated and serviced by Darien Rowayton Bank (DRB), which exclusively provides refinancing services for existing student loan debt. The company is in only its second year of securitizations, and is coming to the market with its third largest collateral pool. (The most recent deal was the DRB Prime Student Loan Trust 2015-D that included $375.4 million in loans.)
The Darien, Conn.-based lender plans to issue three notes in three loan groups: $49.2 million in Class A-1 notes with an April 2040 maturity, backed by variable-rate loans and refinancings; $95 million in Class A-2 notes due April 2040 featuring fixed-rate loans greater than 60 months; and $20.5 million in Class A-3 notes maturing in April 2036, supported by the pool fixed-rate loans under 60 months.
All of the notes are provisionally rated ‘AA (low)’ by DBRS, commensurate with DRB’s lower credit enhancement figures as compared to peer group securitizations of private student loan financings. The Initial overcollateralization figures are 12.3% for the Class A-1 notes; 12.22% for the Class A-2 notes, and 14.5% for the Class A-3 notes. For each of the note classes a reserve account will be funded equal to approximately 0.15% of the note balance; that builds to 0.25% upon the transfer to a successor servicer of the loans.
The underlying pool of high-quality borrowers feature an average weighted FICO of 764, with average incomes of $191,097 and borrower debt-to-income ratios of 27.8%. DRB has had a substantially healthy history of loan performance: only four loans out of the $1.8 billion is has issued have ever defaulted, and only 17 hardship deferments were granted. Students who refinance through DRB have an average of 44 months of seasoned payment history on their original loans.
Nearly 75% of its borrowers are MBAs or graduates of law, medical or advanced-degree dental or nursing education programs. About 5.9% of the loans in the pool went to medical school graduates who receive average income of $213,312 annually during their medical residency period.
