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Fitch Rates Edsouth Indenture No. 7, LLC, Series 2014-3 (ESA 2014-3)

NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns the following ratings to two classes of ESA 2014-3 notes issued by Edsouth Indenture No. 7, LLC, pursuant to a discrete indenture dated July 1, 2014:

--$202,100,000 floating-rate class A notes 'AAAsf'; Outlook Stable;

--$4,200,000 floating-rate class B notes 'Asf'; Outlook Stable.

The subordinate class B notes are subject to an interest cap. Fitch does not rate any amount of the class B carry-over amount.

KEY RATING DRIVERS

High Collateral Quality: The trust collateral is comprised entirely of student loans originated under Federal Family Education Loan Program (FFELP). Although the trust consists of approximately 100.0% 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 at least 97% reinsurance of principal and accrued interest provided by the U.S. Department of Education (ED).

Sufficient Credit Enhancement: Credit enhancement (CE) is provided by approximately $3,221,452 of overcollateralization (OC) and excess spread. At closing, a senior parity of 103.67% and total parity of 101.56% is expected. Cash may be released to the issuer when the Target OC, equal to the greater of 2.25% of the adjusted pool balance or $300,000, has been reached. Fitch reviewed transaction cash flows that were stressed at a level commensurate with Fitch's 'AAAsf' rating categories for the senior notes and 'Asf' for the subordinate notes. The cash flow results were satisfactory under corresponding stress scenarios for the senior and subordinate classes of notes.

Adequate Liquidity Support: Liquidity support for the ESA 2014-3 notes is provided by a $5.9 million capitalized interest fund, and a $507,784 reserve fund, with a debt service reserve fund requirement equal to the greater of 0.25% of the outstanding pool balance and 0.15% of the initial pool balance, each funded at closing with note proceeds. The capitalized interest fund will terminate on July 1, 2016, and any remaining funds will be disbursed as available funds on the July 2016 distribution date.

Acceptable Servicing Capabilities: Educational Services of America, Inc. (EdsouthServices) will be the master servicer. Pennsylvania Higher Education Assistance Agency (PHEAA; 32.2%), Great Lakes Education Loan Services, Inc. (GLELSI; 64.3%) and Georgia Student Finance Authority (Georgia; 3.5%) are the servicers. PHEAA will also be back-up servicer for Georgia. Fitch has reviewed the servicing operations of each servicer and believes them to be acceptable servicers of FFELP student loans.

RATING SENSITIVITIES

Since FFELP student loan ABS rely on the U.S. government to reimburse defaults, 'AAA'sf 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.

Key Rating Drivers and Rating Sensitivities are further described in the pre-sale report titled 'Edsouth Indenture No. 7 LLC, Series 2014-3', dated July 2, 2014, available at www.fitchratings.com.

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

Applicable Criteria and Related Research:

--'Global Structured Finance Rating Criteria' (May 20, 2014);

--'Rating U.S. Federal Family Education Loan Program Student Loan ABS Criteria' (June 23, 2014);

--'Edsouth Indenture No. 7, LLC, Series 2014-3' (July 2, 2014).

Applicable Criteria and Related Research:

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

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

Global Structured Finance Rating Criteria

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

Edsouth Indenture No. 7, LLC, Series 2014-3

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=751479

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=838757

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Contacts

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