Refinanced student loans of high-earning medical and legal professionals may be about as safe a pool investors could hope for, in the opinion of ratings agencies.
This week, DBRS Morningstar and S&P Global Ratings each assigned preliminary triple-A ratings to a new $482.5 million asset-backed note offering sponsored by SoFi Lending Corp., a San Francisco-based lender that targets professional graduate students of top schools for low-rate financings of their large student-loan obligations.
Unlike other asset-backed issuers in the auto or mortgage sector, SoFi was able to market SoFi Professional Loan Program 2020-C Trust without additional investor protections above what it offered in previous deals priced earlier this year before the COVID-19 outbreak.
For example, a credit enhancement of 14.9%-15.1% is the same as the $1.067 billion SoFi 2020-B deal priced in February and the $900 million SoFi 2020-A transaction from January. (Both deals were upsized at closing).
Presale report state the super-prime borrowers in the pool have “significant financial strength” – a weighted average FICO of 781 (as reported by DBRS Morningstar), annual incomes of $152,821 and monthly free cash flow in excess of $6,400 – and “are in professions that generally exhibit very low unemployment rates,” wrote DBRS Morningstar analysts, in a presale report.
“Further, SoFi Refi borrowers typically work in industries or professions that are far less susceptible to lost income during a natural disaster or an economic downturn.”
Although SoFI, like other lenders, has had a “significant increase in forbearances” in response to the coronavirus pandemic, none of the loans in SoFI 2020-C are currently deferred or experiencing late pays, according to DBRS Morningstar. Should any of the loans subsequently enter forbearance before the expected May 19 closing date of the transaction, SoFi’s trust plans to swap those loans out with accounts with current-pay status.
Both SoFi and the pool’s servicer, The Higher Education Loan Authority of the State of Missouri, have implemented response measures to the outbreak with remote work procedures for employees that will minimize operational disruptions from the outbreak.
One change to the pool is an increased portion (3.67%) of loans to students currently serving in unpaid fellowships or residency programs. Payments on those loans will not begin for another 22 months, on average, but are underwritten to a borrower’s potential future income.
The deal is being underwritten by Goldman Sachs, BofA Securities, Citigroup, Deutsche Bank, J.P. Morgan and Morgan Stanley.
