Fitch Affirms Edsouth Indenture No. 5, LLC Series 2014-1; Outlook Stable
OREANDA-NEWS. Fitch Ratings has affirmed all outstanding notes issued from Edsouth Indenture No. 5, LLC Series 2014-1 (EdSouth No. 5). The Rating Outlook on all outstanding notes remains stable.
KEY RATING DRIVERS
Collateral Quality: The trust collateral consists of 100% of Federal Family Education Loan Program (FFELP) loans. Although the trust consists of 100% Rehabilitated FFELP loans, the credit quality of the trust collateral is high, in Fitch's opinion, based on the guarantees provided by the transaction's eligible guarantors and reinsurance provided by the U.S. Department of Education (ED) for at least 97% of principal and accrued interest. The Stable Outlooks on the notes is consistent with Fitch's affirmation of the U.S. sovereign rating at 'AAA'; Outlook Stable.
Credit Enhancement: Credit enhancement is provided by overcollateralization (OC) and excess spread. The class A notes also benefit from subordination from the class B notes. As of October 2015 collection period, senior and total parity are at 107.18% and 103.85%, respectively. Cash may be released to the issuer when the target OC equals to the greater of 2.25% of the adjusted pool balance or $3.5 million.
Liquidity support: Liquidity support is provided by a
$3 million capitalized interest account and $329,020 reserve account as of the October 2015 collection period. The reserve is sized at the greater of 0.25% of outstanding notes and $201,000 floor.
Servicing Capabilities: Pennsylvania Higher Education Assistance Authority (PHEAA: 56.11%) and Great Lakes Education Loan Services, Inc. (GLELSI: 43.89%) as of October 2015 collection period. Fitch considers both to acceptable servicers of FFELP student loans for servicing the trust.
On Nov. 18, 2015, Fitch released its exposure draft which delineates revisions it plans to make to the 'Rating U.S. Federal Family Education Loan Program Student Loan ABS Criteria', dated June 23, 2014. Fitch has reviewed this transaction under both the existing and proposed criteria.
RATING SENSITIVITIES
Since the FFELP student loan ABS relies 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, basis risk, and loan extension risk account for the majority of the risk embedded in FFELP student loan transactions. Additional defaults, basis shock beyond Fitch's published stresses, lower than expected payment speed, and other factors could result in future downgrades. Likewise, a buildup of CE 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 classes:
Edsouth Indenture No. 5, LLC Series 2014-1
--Class A at 'AAAsf'; Outlook Stable;
--Class B at 'Asf'; Outlook Stable.
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