Fitch Takes Various Actions on Educational Funding of the South Inc., Series 2012-1

NEW YORK--()--Fitch Ratings affirms Educational Funding of the South, Inc. 2003 Indenture, Series 2012-1 senior notes at 'AAAsf' and upgrades the subordinate notes to 'AAsf' from 'Asf'. The Rating Outlook on all of the notes, which is tied to the sovereign rating of the U.S. government, is Stable.

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. Fitch currently rates the U.S. 'AAA' with a Stable Outlook.

Sufficient Credit Enhancement: CE is provided by overcollateralization (OC; the excess of trust's asset balance over bond balance) and excess spread. As of April 2014, senior and total parity is 106.4% and 103.23%, respectively. Additionally, the trust is in turbo and no cash will be released until all notes have been paid in full.

Adequate Liquidity Support: Liquidity support is provided by a debt service reserve Fund currently sized at $4,677,099 (0.50% of the bond balance, with a floor of $922,391)

Acceptable Servicing Capabilities: Day-to-day servicing will be provided by PHEAA, which Fitch believes to be and acceptable servicer of FFELP loans.

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. 2003 Indenture, Series 2012-1:

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

--Class B upgraded to 'AAsf' from 'Asf'; Outlook Stable.

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;

--'Educational Funding of the South, Inc., Series 2012-1', dated July 11, 2012.

A comparison of the transaction's RW&Es to those of typical RW&Es for student loans is available by accessing the reports and links below:

--'Educational Funding of the South, Inc., Series 2012-1 - Appendix', dated July 11, 2012;

--'Representations, Warranties, and Enforcement Mechanisms in Global Structured Finance Transactions -- Amended', dated April 17, 2012.

Applicable Criteria and Related Research:

Global Structured Finance Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=748821

Rating U.S. Federal Family Education Loan Program Student Loan ABS Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=708795

Educational Funding of the South, Inc., Series 2012-1

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=683476

Educational Funding of the South, Inc., Series 2012-1 - Appendix

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=683815

Representations, Warranties, and Enforcement Mechanisms in Global Structured Finance Transactions

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=676496

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=836773

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Contacts

Fitch Ratings
Primary Analyst
Victoria Ohorodnyk, +1 212-908-0866
Associate Director
Fitch Ratings, Inc.
33 Whitehall Street
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

Sharing

Contacts

Fitch Ratings
Primary Analyst
Victoria Ohorodnyk, +1 212-908-0866
Associate Director
Fitch Ratings, Inc.
33 Whitehall Street
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