NEW YORK--(BUSINESS WIRE)--Fitch Ratings expects to rate Edsouth Indenture No. 10, LLC, Series 2015-2 as follows:
--$213,000,000 class A notes 'AAAsf(EXP)'; Outlook Stable;
--$3,500,000 class B notes 'Asf(EXP)'; Outlook Stable.
KEY RATING DRIVERS
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 66.07% 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). Fitch rates the U.S. sovereign rating at 'AAA' with a Stable Rating Outlook.
Sufficient Credit Enhancement: Credit enhancement is provided by $5,832,380 overcollateralization (OC) and excess spread. At closing, a senior parity of 104.38% and total parity of 102.69% is expected. The trust is in turbo and funds cannot be released from the trust unless all the series 2015-2 notes have been paid in full. Fitch reviewed transaction cash flows stressed at Fitch's 'AAAsf' and 'Asf' for the senior and subordinate notes, respectively, and the cash flow results were satisfactory under the corresponding stress scenarios.
Adequate Liquidity Support: Liquidity support for the ESA 2015-2 notes is provided by a $2,195,900 capitalized interest fund and a $548,969 debt service reserve fund. The capitalized interest fund will step down to approximately $1,097,950 on the December 2016 distribution date and the remaining amount will be released on the December 2017 distribution date as available funds. The debt service reserve fund requirement will be equal to the greater of 0.25% of the outstanding pool balance and 0.15% of the initial pool balance. The capitalized interest and debt service reserve fund will be funded at closing with note proceeds.
Acceptable Servicing Capabilities: Pennsylvania Higher Education Assistance Agency (PHEAA) and Great Lakes Educational Loan Services Inc. (GLESI) are the servicers at 93.3% and 6.7% of the loan balance, respectively. Fitch has reviewed the servicing operations of each servicer 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.
DUE DILIGENCE USAGE
No third party due diligence was provided or reviewed in relation to this rating action.
Key Rating Drivers and Rating Sensitivities are further described in the pre-sale report titled 'Edsouth Indenture No. 10, LLC, Series 2015-2', and for a further discussion on the representations, warranties, and enforcement mechanisms available to investors in this transaction, please see the related presale appendix, dated Dec. 7, 2015, available on www.fitchratings.com, or by clicking on the link.
Additional information is available at www.fitchratings.com.
Edsouth Indenture No. 10, LLC, Series 2015-2 (US Student Loans)
Counterparty Criteria for Structured Finance and Covered Bonds (pub. 14
Criteria for Interest Rate Stresses in Structured Finance Transactions
and Covered Bonds (pub. 19 Dec 2014)
Exposure Draft: Rating U.S. Federal Family Education Loan Program
Student Loan ABS Criteria -- Amended (pub. 04 Dec 2015)
Global Structured Finance Rating Criteria (pub. 06 Jul 2015)
Rating U.S. Federal Family Education Loan Program Student Loan ABS
Criteria (pub. 23 Jun 2014)
Edsouth Indenture No. 10, LLC, Series 2015-2 Appendix
Dodd-Frank Rating Information Disclosure Form