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.