SoFi kicks off year with $720M offering of student loan ABS
Social Finance is marketing its first offering of the year of bonds backed by loans refinancing the student debt of borrowers with advanced degrees and high incomes. The $720.1 million SoFi Professional Loan Program 2018-A is only slightly smaller than its final deal of 2017, which was upsized in response to strong demand.
Three tranches of senior Class A notes totaling $677.3 million with preliminary triple-A ratings from Moody's Investors Service and DBRS will be issued in the latest transaction. The $55 million Class A-1 tranche is primarily backed by floating-rate loans, and will carry a variable-rate coupon based on one-month Libor. Both the $358.5 million of Class A-2A notes and the $236.8 million of Class A-2 notes are primarily backed by fixed-rate student loans.
All three tranches benefit from 23.44% credit enhancement, in addition to an estimated excess spread of 2 to 5%, according to rating agency presale reports. That's in line with the CE for SoFi’s most recent transaction in December.
DBRS alone assigned a preliminary AA rating to 69.8 million of Class B notes, which will be secured by both the variable-rate and fixed-rate loans.
Compared with the December transaction, the pool of collateral for the latest deal has a slightly higher concentration of loans to borrowers who have undergraduate (as opposed to graduate) degrees: 24.8% vs 20.9%. There is also a slightly higher concentration of loans refinancing Parent PLUS loans: 6.4% vs 5.7%.
Nevertheless, the borrowers in the latest deal have similar credit characteristics to those of SoFi's previous deal, with a weighted average credit score of 772, a weighted-average income of $170,820 and a weighted-average monthly free cash flow after expenses of $7,285.
Nearly 25% of the refinanced loans were to medical/dental degree graduates with a weighted-average yearly income of $275,009; 12.4% from law school with incomes of $172,408; and 12.3% of the pool is comprised of MBA program graduates earning $150,136 annually.
The loans in SoFi's managed portfolio have extremely low default rates, according to ratings agency reports. As of Nov. 30, 2017, the company’s $15 billion in loans to 185,000 borrowers produced only 587 individual delinquencies of more than 60 days. SoFi has charged off only $16.4 million of the loans.
In addition to student-loan backed securities, SoFi also issues asset-backed notes that pool direct consumer loans. In all, the company sponsored 12 total ABS transactions adding up to $6.9 billion in notes last year.