Fitch Ratings affirms 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
High 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 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 Outlook on the notes is consistent with Fitch's affirmation of the U.S. sovereign rating at 'AAA', Outlook Stable.
Sufficient Credit Enhancement: CE is provided by overcollateralization (OC; the excess of trust's asset balance over bond balance) and excess spread. As of the November 2014 collection period, senior and total parity is 105.83% and 103.22%, respectively. Cash may be released to the issuer when the Target OC is equal to the greater of 2.25% of the adjusted pool balance or $3,000,000.
Adequate Liquidity Support: Provided by a $4.5 million capitalized interest account and $415,100 reserve account as of the November 2014 collection period. The reserve account is sized at the greater of 0.25% of outstanding notes and $201,000 floor.
Acceptable Servicing Capabilities: Pennsylvania Higher Education Assistance Authority (PHEAA: 44.73%), Great Lakes Education Loan Services, Inc. (GLELSI: 43.56%), and Georgia Student Finance Authority (GSFC: 11.71%) are the servicers. PHEAA is the back-up servicer to GSFC. In Fitch's opinion, both are acceptable servicers of FFELP student loans.
Rating Sensitivities
Since 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 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.
Fitch has taken the following rating action:
Edsouth Indenture No.5, LLC Series 2014-1:
-- Class A notes affirmed at 'AAAsf'; Outlook Stable;
-- Class B notes affirmed at 'Asf'; Outlook Stable.
A comparison of the transaction's representations, warranties, and enforcement mechanisms (RW&Es) to those of typical RW&Es for FFELP asset-backed securities is available in the presale appendix. This presale appendix and Fitch's special report on "Representations, Warranties, and Enforcement Mechanisms on Global Structured Finance Transactions," may be accessed via the links provided below.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Global Structured Finance Rating Criteria' dated May 20, 2014;
--'Rating U.S. Federal Family Education Loan Program Student Loan ABS Criteria' dated June 23, 2014;
--'Edsouth Indenture No. 5, LLC, Series 2014-1 -- Appendix', dated Jan 29, 2014;
--'Representations, Warranties, and Enforcement Mechanisms in Global Structured Finance Transactions' dated Oct. 31, 2014.
Applicable Criteria and Related Research:
Edsouth Indenture No. 5, LLC, Series 2014-1 -- Appendix
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=732955
Rating U.S. Federal Family Education Loan Program Student Loan ABS Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=750530
Global Structured Finance Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=754389
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=978628
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