Fitch Affirms Edsouth Indenture No. 6, LLC Series 2014-2 Notes; Outlook Stable

NEW YORK--(BUSINESS WIRE)--

Fitch Ratings has affirms the 'AAAsf' and 'Asf' rating on the senior and subordinate notes, respectively, issued by Edsouth Indenture No. 6, LLC Series 2014-2 (Edsouth No. 6). 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, including 19.81% of 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 current U.S. sovereign rating is 'AAA' with a Stable Outlook.

Sufficient Credit Enhancement (CE): Credit Enhancement is provided by overcollateralization and excess spread. In addition, the class A notes benefit from subordination provided by the class B notes. As of March 2016, reported senior and total parity are at 106.57% and 102.34%, respectively. Excess spread must build to the greater of 1.48% of the adjusted pool balance and $600,000 before any excess cash can be released from the trust. Currently, the trust is releasing excess cash.

Adequate Liquidity Support: Liquidity support is provided by a $3.35 million capitalized interest fund and $0.70 million reserve fund, which is required to maintain at the greater of 0.25% of the Pool Balance or 0.15% of the initial pool balance ($616,544 floor). The amount remaining in the capitalized interest account on the May 2016 distribution date will be transferred to the collection fund.

Acceptable Servicing Capabilities: Pennsylvania Higher Education Assistance Agency (PHEAA) currently services approximately 82.27% of the portfolio; Great Lakes Education Loan Services, Inc. (GLELSI) services the remainder at 17.73%. Fitch believes that both servicers are acceptable servicers of FFELP student loans.

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.

Fitch affirms the following:

Edsouth Indenture No. 6, LLC Series 2014-2:

--Class A notes at 'AAAsf'; Outlook Stable;

--Class B notes at 'Asf'; Outlook Stable.

DUE DILIGENCE USAGE

No third party due diligence was provided or reviewed in relation to this rating action.

Additional information is available at www.fitchratings.com.

Applicable Criteria

Counterparty Criteria for Structured Finance and Covered Bonds (pub. 14 May 2014)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=744158

Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds (pub. 19 Dec 2014)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=838868

Exposure Draft: Rating U.S. Federal Family Education Loan Program Student Loan ABS Criteria (pub. 04 Dec 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=874971

Global Structured Finance Rating Criteria (pub. 06 Jul 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=867952

Rating U.S. Federal Family Education Loan Program Student Loan ABS Criteria (pub. 23 Jun 2014)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=750530

Related Research

Edsouth Indenture No. 6, LLC, Series 2014-2 -- Appendix

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=748515

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1003623

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1003623

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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