Fitch Affirms Edsouth Indenture No. 4, LLC Notes

NEW YORK--()--Fitch Ratings affirms the ratings on the senior and subordinate notes issued by Edsouth Indenture No. 4, LLC. The Rating Outlook remains Stable on all the notes.

--Class A affirmed at 'AAAsf'; Outlook Stable;
--Class B affirmed at 'AAsf'; Outlook Stable.

KEY RATING DRIVERS

High Collateral Quality: The trust collateral comprises Federal Family Education Loan Program (FFELP) loans, including 12.40% of rehabilitated loans as of January 2016, 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 January 2016, senior and total parity used for calculating the OC release level are 107.76% and 101.96% respectively, while the senior and subordinate parity on the servicer report, which includes other accrued interest in addition to interest to be capitalized, are 108.88% and 103.02% 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 $851,313 as of January 2016.

Acceptable Servicing Capabilities: Pennsylvania Higher Education Assistance Agency (PHEAA) currently services (88.97%) of the collateral pool with the remainder serviced by Great Lakes Educational Loan Services, Inc. (11.03%). Fitch has reviewed the servicing operations of PHEAA and Great Lakes, and believes them to be 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.

Under certain stress scenarios detailed in Fitch's existing FFELP rating criteria, the senior notes miss their legal final maturity of February 26, 2029, while the subordinate notes pass at their respective rating level. Under stress scenarios detailed in Fitch's proposed FFELP rating criteria, the senior and subordinate notes pass all cash flow stresses for their respective rating levels.

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 build-up of CE driven by positive excess spread given favorable basis factor conditions could lead to future upgrades.

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. 4, LLC, Series 2013-1 -- Appendix
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=708473

Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1002236
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1002236
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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Contacts

Fitch Ratings
Primary Analyst
Jeffrey Prackup
Director
+1-212-908-0839
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Committee Chairperson
Michael Dean
Managing Director
+1-212-908-0556
or
Media Relations
Sandro Scenga, New York, +1 212-908-0278
sandro.scenga@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Jeffrey Prackup
Director
+1-212-908-0839
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Committee Chairperson
Michael Dean
Managing Director
+1-212-908-0556
or
Media Relations
Sandro Scenga, New York, +1 212-908-0278
sandro.scenga@fitchratings.com