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Nelnet sponsors $498M student-loan ABS with limited rehab exposure

After a prior securitization of all-rehab FFELP student loans in April, Nelnet Inc. is returning to the ABS market with a much smaller portion of formerly troubled accounts in its next pool.

According to a presale reports from SP Global Rating and Moody’s Investors Service, the balances on formerly defaulted student loans that have since been rehabilitated to current status will make up only 20% of the collateral pool in the $498.3 million Nelnet Student Loan Trust (NLST) 2019-3 deal.

Three months ago, Nelnet completely filled out the pool for the $416 million NSLT 2019-2 transaction with rehab loans. (Rehab loans are considered current under Higher Education Act guidelines after a borrower makes nine consecutive timely payments).

Although rehabbed Federal Family Education Loan Program loans carry the same 97% insured guarantee of non-rehab loans through the U.S. Department of Education, they typically have higher net loss rates than non-rehab loans.

Also, the percentage of rehab student loans originated will impact the ultimate pricing on Nelnet’s deals. The senior notes for NLST 2019-2 priced at 90 basis points over one-month Libor with a 100% rehab loan portfolio, while NLST 2019-1 was only 30 basis points for a deal made up of 80% non-rehabilitated loans.

Pricing on the deal is to be determined on the new transaction, which is slated to close on July 24.

Besides FFELP loans, the pool also consists of 54.1% Stafford loans, 42.6% consolidation loans, and 1.2% of Parent Loan for Graduate Students and Supplemental Loans for Students (SLS) collateral. Nearly 83% of the seasoned loans are in repayment status and generating cash flow. Seventeen percent of the loans are in deferment or forbearance.

The notes offering will consist of a $485.8 million Class A notes tranche and a non-amortizing $12.5 million Class B offering. The notes carry a preliminary Aaa rating from Moody’s and AA+ by SP. SP limits Nelnet’s deals to the double-A rating ceiling because the federal guarantees behind them rely heavily on the U.S. government’s sovereign SP rating of AA+.

RBC; Bank of America Merrill Lynch; Pierce, Fenner Smith; Citigroup and BMO Capital are managing the transaction.