The Vermont Student Assistance Corp. will sponsor $20.4 million in asset-backed securities, backed by a pool of private student loans, in a deal that has a slightly lower base case default rate assumption on the underlying loans in the collateral pool.
VSAC 2023-A's base case default rate assumption is 3.5%, down from 4.0% on immediate repayment loans, which include loans from parent advantage loans, one of Vermont's lending products. For interest-only loans, the base case default rate assumption also fell by half a percentage point, to 6.0%, from 6.5%, according to Fitch Ratings, which plans to assign ratings to the notes.
It is not clear which institution will manage the deal, but Bank of America Merrill Lynch has been manager on all VSAC transactions dating back to 2017, according to the Asset Securitization Report's deal database. This deal is also the tenth issuance from the master trust dating back to 2012, the rating agency said.
VSAC's 2023 bonds are tax-exempt and fixed-rate serial and term bonds, and will repay investors on a senior-subordinate basis. In terms of specific repayment priorities, Fitch says VSAC will first repay the outstanding interest, replenish the debt service reserve fund and then repay the principal, all while prioritizing the senior notes over the subordinate notes, according to Fitch.
At around June 15, 2024, the VSAC will reach the end of a collateral recycling period, when it has the option to originate additional eligible loans.
Vermont Student Assistance Corp. originates two types of loans for the collateral—the student advantage loan (SAL) and the parent advantage loan (PAL), according to Fitch. Both programs require a minimum FICO score of 680 from its borrowers, and SAL loans require a cosigner, the rating agency notes.
While the collateral is comprised of loans from highly qualified borrowers, the notes do benefit from several forms of credit enhancement, comprised of subordination for the senior bonds, excess of the trust's total assets over its liabilities and excess spread, according to Fitch.
All of the senior bonds have an initial credit enhancement level of 26.2%, while the subordinate bonds benefit from an initial credit enhancement level of 18.5%, according to Fitch. The rating agency intends to assign ratings of 'A' to all of the notes, which have legal final maturities ranging from June 15, 2029 through June 15, 2041.
