Not content with its £10 billion-a-year PFI programmes, the UK government plans to extend its use of securitization to its student loan book. This is worth about £18.1 billion and is expected to increase in value to £55 billion over the next 10 years. Legislation is now in the House of Lords to enable the government to sell these loans to the capital markets a process that it hopes will raise £6 billion by 2010.
In light of what has happened over the past nine months, that hope now looks rather remote. With limited investor appetite for ABS wrapped or unwrapped at the moment any attempt to package a large transaction in an untested asset class might be tricky. But these are clearly very low risk loans, and there might be appetite for what is essentially government risk.
The idea of securitizing student loans is hardly new, and critics assert that if the government had acted more quickly on the proposal it would not have missed the market last summer. Goldman Sachs and Morgan Stanley were originally hired to conduct a feasibility study into the proposal but the government then undertook an entirely new bidding process for an adviser to the sale and chose Deutsche Bank. The reason for the decision to switch adviser in mid-deal is unclear, but it can only have slowed down the process something for which the UK government will pay when it is finally in a position to come to the market.