Fitch Maintains Watch on Sr Notes & Affirms Sub Notes for Ed Funding of the South, Inc. 2011-1

NEW YORK--()--Fitch Ratings maintains the Rating Watch Negative on the senior notes currently rated 'AAAsf' and affirms the subordinate notes at 'AA+sf' issued by Educational Funding of the South, Inc. Series 2011-1. The Rating Outlook remains Stable for the subordinate notes.

KEY RATING DRIVERS

High Collateral Quality: The trust collateral comprises Federal Family Education Loan Program (FFELP) loans with 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.

Rating Watch Maintained: 'AAAsf' rated tranches of U.S. FFELP student loan ABS are maintained on Rating Watch Negative following the revision of the U.S. sovereign rating on Oct. 15, 2013.

Sufficient Credit Enhancement: CE is provided by overcollateralization (OC; the excess of trust's asset balance over bond balance) and excess spread. As of December 2013, senior and total parity is at 113.34% and 105.77%, respectively. Fitch expects the parity to continue increasing since no cash can be released from the trust, while the notes are still outstanding.

Adequate Liquidity Support: Liquidity support is provided by a Debt Service Reserve Fund currently sized at $2,868,632.51 (0.50bps of outstanding bond balance, with a floor of 0.15bps).

Acceptable Servicing Capabilities: Day-to-day servicing is provided by PHEAA, which Fitch deems to be an acceptable FFELP student loan servicer.

RATING SENSITIVITIES

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.

Fitch has taken the following rating actions:

Educational Funding of the South, Inc. Series 2011-1:

--Class A-1 at 'AAAsf'; Negative Rating Watch maintained.

--Class A-2 at 'AAAsf'; Negative Rating Watch maintained.

--Class B affirmed at 'AA+sf'; Outlook Stable.

Additional information is available at 'www.fitchratings.com'

Applicable Criteria and Related Research:

--'Global Structured Finance Rating Criteria' (May 24, 2013);

--'Rating U.S. Federal Family Education Loan Program Student Loan ABS Criteria' (May 17, 2013).

Applicable Criteria and Related Research:

Global Structured Finance Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=708661

Rating U.S. Federal Family Education Loan Program Student Loan ABS Criteria - Effective Apr. 7, 2011 to Apr. 3, 2012

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=616766

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=820046

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Contacts

Fitch Ratings
Primary Analyst
Victoria Ohorodnyk, +1-212-908-0866
Analyst
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Committee Chairperson
Tracy Wan, +1-212-908-9171
Senior Director
or
Media Relations
Sandro Scenga, +1 212-908-0278
sandro.scenga@fitchratings.com

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Contacts

Fitch Ratings
Primary Analyst
Victoria Ohorodnyk, +1-212-908-0866
Analyst
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Committee Chairperson
Tracy Wan, +1-212-908-9171
Senior Director
or
Media Relations
Sandro Scenga, +1 212-908-0278
sandro.scenga@fitchratings.com