Ratings Affirmed On Laurel Road Prime Student Loan 2017-B

Stocks and Financial Services Press Releases Wednesday February 14, 2018 09:54
NEW YORK--14 Feb--S&P Global Ratings

NEW YORK (S&P Global Ratings) Feb. 13, 2018--S&P Global Ratings today affirmed its ratings on the class A-1, A-2, B, and C notes from Laurel Road Prime Student Loan 2017-B, which is backed by a pool of private student loans (see list). The loans are not guaranteed or reinsured under the Federal Family Education Loan Program (FFELP) or any other federal student loan program. The initial securitization pool primarily consisted of refinanced student loans to obligors who have completed their education.

The transaction's collateral pool and key structural features are described in "Presale: Laurel Road Prime Student Loan 2017-B," published July 24, 2017. Since the transaction closed, some of the loan pool has amortized down to a pool factor of approximately 95%. The transaction's class A-1 note has received all principal payments as it builds to its target overcollateralization amount. The note factor for the class A-1 note is approximately 66% as of the December 2017 distribution period. There have been no payments to the class A-2 or subordinate notes, or releases of excess funds. There have also been no defaults and a de minimis amount of loans are in non-paying status. The initial overcollateralization of the class A, B, and C notes was approximately 17.7%, 10.2%, and 7.2%, respectively, at closing. Since closing, the overcollateralization for each class has increased to 19.2%, 11.4%, and 8.2%, respectively, as of December 2017.


The loan pool for series 2017-B has a strong credit profile, as indicated by a weighted average borrower FICO score of 765, a weighted average gross income of $189,050, and a weighted average income after living expenses of $11,445. Income after living expenses, as calculated by the sponsor at the time of loan origination, is defined as gross monthly income less monthly obligations (credit card, mortgage, rent, auto loan, current student loan debt, etc.) and does not include taxes. The series 2017-B loan pool is consistent in credit quality with the loan pool for Laurel Road's most recent transaction, series 2017-C (see table 1 below).

Table 1
Pool At Origination
Series 2017-B 2017-C
Total amount ($) 253,286,865 312,309,500
Average loan balance ($) 113,176 116,143
Fixed loans (%) 100 88
Variable loans (%) 0 12
Obligor statistics
WA age 32 32
WA annual gross income ($) 189,050 201,854
WA mos. since graduation 43 45
WA FICO 765 768
WA free cash flow ($) 11,445 12,142
WA--Weighted average.

Our assumed base-case default rate for series 2017-C of 2.75% was based on a review of available performance data for Laurel Road as well as similar issuers (see "Presale: Laurel Road Prime Student Loan Trust 2017-C," published Nov. 6, 2017). Student loan refinance subsector performance data continues to show low default rates, reflecting the strength of the obligor credit quality within these loan pools as well as the favorable macroeconomic environment. Consistent with the subsector as a whole, Laurel Road has also experienced exceptionally low default rates. Through September 2017, Laurel Road's total managed portfolio has experienced approximately $1.9 million of total defaults on approximately $2.9 billion of loan originations. Our view also considers peer comparisons to other similar issuers of prime refinance student loans. Given the similarities in credit quality of the series 2017-B and 2017-C loan pools as shown in table 1 above, we are lowering our base-case default rate for series 2017-B to 2.75% from 4.5%, in line with that for series 2017-C.


Despite lowering our base-case default rate, at this time we are affirming the ratings on the notes for the series 2017-B transaction given their lower floor enhancement levels relative to the notes from series 2017-C (see table 2 below). Due to limited available historical data for this collateral type in stressed economic conditions, it's uncertain how the notes would be affected if the transaction became exposed to significant back-ended losses. As a result, we focused on the level of floor enhancement at the time of issuance relative to other similar rated notes in our rating analysis.

Table 2
Target Overcollateralization For Series 2017-B And 2017-C
Series 2017-B 2017-C
Target overcollateralization(I)
Class A target (% current) 20.50 17.25
Class A floor (% initial) 3.50 3.50
Class B target (% current) 13.00 10.00
Class B floor (% initial) 2.00 2.50
Class C target (% current) 10.00 7.25
Class C floor (% initial) 1.15 2.00
(i)Overcollateralization is defined as the pool balance plus the reserve account less the balance of the notes divided by the pool balance plus the reserve account.
We will continue monitoring this transaction's performance including remaining net loss expectations relative to available credit enhancement levels.

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