SoFi Lending Corp. is launching its first offering of the year of bonds backed by private loans refinancing student debt.
The $561.0 million SoFi 2017-A transaction represents the 14th rated term student loan ABS transaction from the sponsor.
The deal marks a return to high-credit quality borrowers who have graduated and are employed with significant incomes and excessive cash flow. The majority of the loans in the securitization pool were made to borrowers who have completed advanced degree programs from eligible graduate schools. The portfolio contains a weighted-average credit score of 764, according to DBRS.
Additionally, the student loans have a weighted-average borrower income of $170,260 and a weighted-average borrower monthly free cash flow after expenses of $7,088.
By comparison, SoFi’s previous transaction, completed in December, was backed by a substantial proportion (approximately 66%) of loans with credit scores below 680.
The latest transaction will issue three tranches of Class A senior notes with preliminary AAA/ ratings from DBRS and Moody's Investors Service: the Class A-1 floating-rate notes will be supported by variable rate loans; the Class A2A fixed-rate notes and Class A2B fixed-rate notes will be supported by variable and fixed-rate loans, as will the Class B notes. rated AA/A1; and the Class C notes rated, A/Baa2.
Moody's puts the expected average life of the notes at 3.3 years.
Goldman Sachs, Morgan Stanley and Bank of America Merrill Lynch are the initial purchasers.
The Higher Education Loan Authority of the State of Missouri is the servicer. ECMC Holdings Corp. is the backup administrator.
The borrowers underlying SoFi 2017-A have comparable incomes and monthly free cash flow amounts to previous SoFi transactionsm according to DBRS. However, the SoFi 2017-A borrowers earn $13,778 less than SoFi 2016-E borrowers and have $706 less monthly free cash flow. SoFi believes that a borrower’s probability of default is better evaluated through examining credit attributes based on monthly free cash flow versus traditional credit score metrics.
Approximately 69.3% of the pool by outstanding principal balance consists of loans made to borrowers that obtained a graduate degree from one of SoFi’s eligible schools
The weighted-average default rate for the borrower schools underlying the SoFi 2017-A transaction has historically been much lower than the average four-year institution. According to Department of Education statistics, the weighted-average three-year cohort default rate by school of the SoFi collateral pool (not including loans that refinanced Parent PLUS loans) is approximately 3.97% versus 6.50% for private four-year institutions.