NEW YORK--(BUSINESS WIRE)--Fitch Ratings affirms the senior notes at 'AAAsf' and the subordinate notes at 'AAsf', issued by Educational Funding of the South, Inc. 2003 Indenture, Series 2012-1. The Rating Outlook on the notes remains 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): CE is provided by overcollateralization (OC; the excess of trust's asset balance over bond balance) and excess spread. As of April 2016 collection period, senior and total parity is 111.27% and 106.31%, 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 $1,767,044 (0.50% of the bond balance, with a floor of $922,391).
Acceptable Servicing Capabilities: Day-to-day servicing will be provided by AES, which Fitch believes to be and acceptable servicer of FFELP loans.
In certain LIBOR-down interest rate stress scenarios the basis spread may be compressed, as Fitch would apply a floor to 1-month LIBOR at a negative rate level in accordance with Fitch's 'Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds' dated May 2016. Since the updated interest rate stresses are not addressed yet in existing FFELP criteria, this represents a criteria variation. Use of the criteria variation did not have a measurable impact upon the ratings assigned.
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 build-up of credit enhancement 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.
Fitch has affirmed the following ratings:
Educational Funding of the South, Inc. 2003 Indenture, Series 2012-1:
--Class A at 'AAAsf'; Outlook Stable;
--Class B at 'AAsf'; Outlook Stable.
Additional information is available at www.fitchratings.com.
Counterparty Criteria for Structured Finance and Covered Bonds (pub. 14 May 2014)
Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds (pub. 17 May 2016)
Criteria for Servicing Continuity Risk in Structured Finance (pub. 17 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)
Educational Funding of the South, Inc., Series 2012-1 -- Appendix
Dodd-Frank Rating Information Disclosure Form