Credit rating agencies aren’t overly concerned about recent management changes at Social Finance, and it appears that investors feel the same way. The company’s latest student loan securitization attracted strong interest, and priced at levels similar to or better to its previous transaction, completed in July.
SoFi was also able to sell lower-rated bonds than it did in its previous several student loan securitizations.
“This transaction marked the largest securitization sponsored by SoFi, so we are especially pleased with the strong response from investors,” Asish Jain, SoFi’s head of capital markets, said in an emailed statement.
SoFi Professional Loan Program 2017-E came to market just a few weeks after chief executive Michael Cagney stepped down in mid-September amid allegations that he fostered a workplace culture hostile to women employees. Chairman Tom Hutton is acting as interim CEO. Cagney’s departure raised questions about the path forward for one of the most successful companies in fintech.
Nevertheless, the deal priced Friday at yield spreads over their benchmarks that were inside of original guidance, even after being upsized, according to a person a familiar with the transaction. Individual tranches were oversubscribed by between 2.9 times and 3.5 times.
The senior tranche of Class A-1 notes, which was rated triple A by both S&P Global Ratings and DBRS, pays 50 basis points over one-month Libor. That's inside of initial price talk for a spread of 55 basis points, according to this person.
A subordinate tranche of fixed-rate notes rated AA (by DBRS alone) pays a spread of 135 basis points, compared with a spread of 150 basis points on the double A rated tranche of the previous transaction.
Notably, SoFi’s latest transaction included a tranche of notes rated A (only by DBRS), something absent from its recent student loan securitizations.
Private student loans still have a relatively thin investor base compared with larger asset classes such as auto loans. So there are fewer potential buyers for lower-rated notes.
Another big difference: Student loan-backed securities have longer weighted average lives than many other asset-backeds. And since lower-rated tranches tend to be outstanding the longest, investors have to be comfortable holding on to the additional risk for longer periods.
It was the first time S&P had rated a SoFi student loan securitization since 2015; at that time, S&P capped its rating on the senior notes because less than three years of the company's operating history and collateral performance were available. In its presale report for the 2017-E transaction, the rating agency noted that SoFi has now been in existence for over five years and has originated over $12.2 billion in refinancing student loans, only charging off $11.8 million, for an 0.1% default rate.
S&P also noted SoFi’s management changes, but said they are unlikely to negatively affect the performance of any SoFi securitizations that it rates. S&P will continue to monitor any developments with respect to the leadership changes, however.
DBRS also noted the management changes in its presale report, but did not comment on them, other than to say it was monitoring the situation.