Refinanced private student loans are backing the $753 million Navient Private Education Refi Loan Trust 2021-E, providing funding to an industry that refinances a mix of existing federal and private student loan debt after borrowers have completed their studies.
Sponsored by Navient Solutions, the trust, NAVI 2021-E, will actually issue notes backed by payments on loans originated by Earnest Operations an indirect, majority-owned subsidiary of Navient Corporation. Navient Solutions is sponsoring the transaction, according to Moody’s Investors Service.
An overwhelming majority of the collateral loans, 91%, were NaviRefi loans originated after December 2020. At that point, Navient had started aligning the underwriting guidelines of NaviRefi loans with those of the Earnest Operations, according to Moody’s.
J.P. Morgan Securities, Barclays Capital, Bank of America Securities, Credit Suisse Securities and RBC Capital markets are listed as initial note purchasers, overseeing a capital structure with two classes. Moody’s expects to rate the $712.6 million class A notes ‘AAA,’ but the rating agency is not expected to rate the $41 million class B notes.
The borrower characteristics lend the portfolio a strong credit profile, according to Moody’s assessment. The borrowers have a weighted average credit score of 769, a weighted average verified annual income of $140,445, and a weighted average monthly free cash flow of $4,809, said Moody’s.
Another advantage to NAVI 2021-E is the short duration of the collateral pool. With a weighted average remaining term of 142 months, it is much shorter than the remaining 150 to 190 months for other PSL deals, Moody’s said.
Despite these strong deal attributes, among others, Moody’s is concerned about how COVID-19 could negatively impact pool performance. The global economy is still recovering from the major toll that the pandemic took on it and certain economies have been resilient, the effects are still uneven. This inconsistency on individual businesses, sectors and regions could persist through the rest of 2021 and beyond.
As far as COVID-related economic impacts are concerned, Moody’s noted that an improving unemployment rate and government support could benefit private student loan performance. There is a caveat to government support, however, because heavy use of payment forbearance programs could delay revenue to the notes and ultimately, payments to bondholders.
