SoFi Lending Corp. has finally nabbed a triple-A.
The marketplace lender’s sixth offering of student loan backed securities is the first securitization of any marketplace loans to achieve the highest possible rating, albeit from a single rating agency, DBRS.
The $417.6 million SoFi Professional Loan Program 2015-C LLC is backed by the same kind of high quality collateral as Sofi’s previous deal, which was only rated double-A: loans to refinance existing student loans to borrowers who completed graduate studies at top-tier universities.
What changed?
The higher rating reflects an investor protection not available on Sofi’s previous deals, known as a “full turbo” feature. In the event that loans used as collateral do not perform as expected, the repayment of the senior class A notes issued by the securitization trust will be accelerated.
The added protection comes on top of a feature introduced in Sofi’s previous deal, the series 2015-B: a high level of overcollateralization. The principal of the loans used as collateral exceeds the value of the notes being issued by some 20%.
Despite the turbo feature, the 2015-C deal did not earn an AAA’ from Moody’s Investors Service; it rates the senior tranches two notches lower, at Aa2’.
Both Moody’s and DBRS consider the collateral to be high quality. Refinancing, or consolidated, student loans are less likely to default than are student loans to borrowers who are in school or who have recently entered repayment, because refinancing loan borrowers have established a payment history. Moreover, most of these borrowers received medical, law or master’s in business administration degrees from top-tier schools.
The loans backing SoFi 2015-C also have shorter average remaining terms (137 months) than most other private student loans (180-300 months), further reducing the risk of missed payments.
The big hurdle to achieving high credit ratings for Sofi and other marketplace lenders is there short operating history. Sofi originated its first refinance loan in 2012, so there is limited data on prepayments, losses and delinquencies.
Sofi 2015-C will issue $136.5 million of variable rate class A-1 notes due in August 2035 that are rated AAA/Aa2 by DBRS and Moodys; $250.8 million of fixed-rate class A-2 notes due August 2033 rated AAA/Aa2; and $30.3 million of fixed-rate class B notes due August 2036 rated BBB/Baa2.
Morgan Stanley, Goldman Sachs, and Credit Suisse Securities are the initial purchasers.
Higher Education Loan Authority of the State of Missouri is the deal’s servicer; Deutsche Bank Trust Company is the trustee.
