NEW YORK--(BUSINESS WIRE)--Fitch Ratings affirms the senior notes at 'AAAsf' and upgrades the subordinate notes to 'AAsf' from 'A+sf' issued by Edsouth Indenture No. 4, LLC. The Rating Outlook remains Stable on all of the notes.
KEY RATING DRIVERS
High Collateral Quality: The trust collateral comprises Federal Family Education Loan Program (FFELP) loans (including 7.8% of rehabilitated loans as of February 2015) 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's current U.S. sovereign rating is 'AAA' with a Stable Outlook.
Sufficient Credit Enhancement (CE): CE is provided by overcollateralization (OC; the excess of trust's asset balance over bond balance), excess spread, and for the senior notes, subordination provided by the subordinate notes. As of February 2015, senior and total parity used for calculating the OC release level are 106.18% and 101.58% respectively, while the senior and subordinate parity on the servicer report, which includes other accrued interest in addition to interest to be capitalized, are 107.11% and 102.46% respectively. Excess spread can be released when the trust reaches an OC amount of the greater of 0.80% of the adjusted pool balance (100.81% parity) or $6,000,000. Excess spread is currently being released, and the trust is maintaining the $6,000,000 overcollateralization level.
Adequate Liquidity Support: Liquidity support is provided by a debt service reserve fund sized at the greater of 0.25% of the pool balance and 0.15% of the initial pool balance. The debt service reserve fund is sized at $982,627 as of February 2015.
Acceptable Servicing Capabilities: Pennsylvania Higher Education Assistance Agency (PHEAA) currently services 89.26% of the collateral pool with the remainder serviced by Georgia Student Finance Authority (0.05%) and Great Lakes Educational Loan Services, Inc. (10.69%). PHEAA will also act as backup servicer for the portion of the collateral pool that is serviced by Georgia. Fitch has reviewed the servicing operations of PHEAA, Great Lakes, and Georgia, and believes them to be acceptable servicers of FFELP student loans.
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 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 CE driven by positive excess spread given favorable basis factor conditions could lead to future upgrades.
Initial Key Rating Drivers and Rating Sensitivities further described in the presale report published on May 15, 2013.
Fitch has taken the following ratings:
Edsouth Indenture No. 4, LLC:
--Class A affirmed at 'AAAsf'; Outlook Stable;
--Class B upgraded to 'AAsf' from 'A+sf'; Outlook Stable.
A comparison of the transaction's Representations, Warranties & Enforcement Mechanisms (RW&Es) to those of typical RW&Es for that asset class is available by accessing the appendix that accompanies the initial Presale Report. Please refer to ' Edsouth Indenture No. 4, LLC, Series 2013-1 -- Appendix ', published on May 15, 2013 at www.fitchratings.com.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Global Structured Finance Rating Criteria' (March 31, 2015);
--'Rating U.S. Federal Family Education Loan Program Student Loan ABS Criteria' (June 23, 2014);.
--'Edsouth Indenture No. 4, LLC, Series 2013-1 (US ABS)' (May 15, 2013);
--'Edsouth Indenture No. 4, LLC, Series 2013-1 - Appendix' (May 15, 2013);
--'Representations, Warranties, and Enforcement Mechanisms in Global Structured Finance Transactions' (Oct.ober 31, 2014).
Applicable Criteria and Related Research:
Global Structured Finance Rating Criteria
Representations, Warranties and Enforcement Mechanisms in Global Structured Finance Transactions
Edsouth Indenture No. 4, LLC, Series 2013-1 -- Appendix
Rating U.S. Federal Family Education Loan Program Student Loan ABS Criteria