Fitch Affirms All Notes Issued by EdSouth Indenture No. 3; Outlook Stable
KEY RATING DRIVERS
Collateral Quality: The trust collateral is comprised of 100% Federal Family Education Loan Program (FFELP) loans of which approximately 10% are rehabilitated loans as of August 2015. In Fitch's opinion, the credit quality of the trust collateral is higher based on the guaranties provided by eligible guarantors and reinsurance provided by the U.S. Department of Education (ED) for at least 97% of principal and accrued interest. The Stable Outlook on the notes is consistent with Fitch's affirmation of the U.S. sovereign rating at 'AAA', Outlook Stable.
Sufficient Credit Enhancement: Transaction credit enhancement is provided by overcollateralization and excess spread. In addition, the class A notes benefit from subordination from the class B notes. As of August 2015 collection period, reported senior and total parity is at 108.04% and 104.32%, respectively. Excess cash has not been released as the trust is currently in turbo. All remaining funds are used to pay down the notes. Excess funds may be released once all of the notes have been paid in full.
Adequate Liquidity Support: Liquidity support is provided by a reserve account sized at the greater of 0.25% of the pool balance and 0.15% of the initial pool balance As of August 2015, reserve account balance is $702,594.
Acceptable Servicing Capabilities: Day-to-day servicing is provided by PHEAA and Great Lakes. Both servicers have demonstrated adequate servicing capabilities.
Since FFELP student loan ABS rely on the U.S. government to reimburse defaults, 'AAAsf' FFELP ABS ratings will likely move in tandem with the 'AAA' U.S. sovereign rating. Aside from the U.S. sovereign rating, defaults and basis risk account for the majority of the risk embedded in FFELP student loan transactions. Additional defaults and basis shock beyond Fitch's published stresses could result in future downgrades. Likewise, a buildup of credit enhancement driven by positive excess spread given favorable basis factor conditions could lead to future upgrades.
DUE DILIGENCE USAGE
No third-party due diligence was provided or reviewed in relation to this rating action.
Fitch has affirmed the following ratings:
EdSouth Indenture No. 3, LLC:
--Class 2012-2 A at 'AAAsf'; Outlook Stable;
--Class 2012-2 B at 'AAsf'; Outlook Stable.