Big Investor Tackling Libor Issue

A big holder of student-loan bonds is rallying other investors to support amendments to deal documents in response to the phase-out of Libor — rather than wait for issuers or policymakers to solve the problem.

While education lenders including Education Credit Management, Navient and Nelnet added new benchmark language to the documents of their most recent securitizations, less progress has occurred when it comes to the floating-rate tranches of older deals.

Enter the unidentified investor, which is working with DealVector to identify other holders of $1 billion of floating-rate notes from two 2007 deals — one issued by Student Loan Corp., the other by J.P. Morgan. Amending the terms of a deal requires approval from 100% of the investors.

DealVector, which operates an online venue where structured-product investors and issuers can share information, believes its Libor Hub portal offers the most efficient route for holders of student-loan bonds and other floating-rate securities to join forces.

DealVector also is working with several issuers on Libor replacement, including education lenders and the sponsor of a collateralized debt obligation backed by trust-preferred shares. The CDO issuer is seeking simultaneously to amend the language of the bond offering as well as the terms of the underlying securities.

DealVector offers its services to investors free of charge, but issuers pay fees for using the site.

Jim Kranz, head of business development at DealVector, said investors could benefit by being proactive in amending their deals to address Libor, which is set to disappear after 2021. He noted that the floating-rate pieces of recent deals from Education Credit, Navient and Nelnet — which include so-called fallback provisions — priced at spreads over one-month Libor that were about 5 bp tighter than deals without such language.

Published in the Asset-Backed Alert August 9, 2019 edition.