SoFi, Massachusetts go head-to-head with student loan refi bonds

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Two student loan refinance lenders, the Mass Education Financing Authority and Social Finance, are in the securitization market this week.

SoFi’s $577.5 million offering is the sponsor’s 23rd rated term student loan ABS transaction, while Massachusetts’ $164 million offering is only its second deal.

Both refinance the private and federally guaranteed loans of borrowers who have graduates from college and are gainfully employed. However, the state student loan authority has a shorter track record, since it has only been in this corner of the market since 2011, and it lends only to borrowers who are Massachusetts residents or attended school in-state. This makes the performance of its bonds more sensitive to an economic downturn in the state.

MEFA Series 2018-A will issue two tranches of notes with preliminary ratings from DBRS: the $157.7 million senior tranche, rated AAA, and the $6.4 million subordinate tranche, rated A.

The senior notes benefit from 3.9% subordination, 7.17% overcollateralization and a reserve fund equal to 0.5% of the principal balance.

The loans backing the notes have a weighted average original credit score of 763, a weighted average income of $104,128 and a weighted average monthly free cash flow of $3,733.

Approximately 36% of the trust’s student loans were made to borrowers with current billing addresses in the state of Massachusetts.

Since the inception of the state’s refinancing loan program, only six loans have defaulted, representing 0.13% of MEFA’s total originations by original principal balance.

SoFi’s transaction is more geographically diverse than MEFA’s. The state with the top concentration in the pool is California with 12.1% followed by New York with 7.9% and Texas with 7.2%.

The transaction also benefits from a second credit rating, at least for the senior tranches.

SoFi Professional Loan Program 2018-D will issue two tranches of senior Class A notes provisionally rated triple-A by DBRS and Moody’s Investors Service and a subordinate tranche of Class B notes rated AA by DBRS alone.

The senior notes all benefit from credit enhancement consisting of 8.33% subordination, 12.19% overcollateralization and a reserve fund equal to 0.25 of the principal balance. However, the Class A2 notes do not begin amortizing until the Class A1 notes are repaid, leaving them outstanding longer.

The loans used as collateral have a weighted average borrower credit score of 782, a weighted average income of $177,623 and a weighted average borrower monthly free cash flow after expenses of $7,495.

The majority of loans, approximately 61% are to borrowers with advanced degrees, 25% are to borrowers with an undergraduate degree, 6% refinance are education loans taken out by parents of students and 7.8% are to medical residents.

All of the loans pay fixed rates of interest.

As of June 30, 2018, SoFi had originated approximately $19.6 billion in refinance loans to approximately 240,000 different borrowers. Of these, only 899 had ever been 60 or more days delinquent, and from inception through that date, SoFi had charged off only $33 million.

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