Fitch Affirms EdSouth Indenture No. 8, LLC

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has affirmed EdSouth Indenture No. 8, LLC (EdSouth No. 8) as follows:

--Class A at 'AAAsf'; Outlook Stable;

--Class B at 'Asf'; Outlook Stable.

KEY RATING DRIVERS

U.S. Sovereign Risk: The trust collateral comprises 100% rehabilitated 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. The U.S. sovereign rating is currently 'AAA'/Outlook Stable.

Collateral Performance: Fitch assumes a base case default rate, based on the weighted average default, of 41.3% and a 99.3% default rate under the 'AAAsf' credit stress scenario. The base case default assumption of 41.3% implies a constant default rate of 10.5% (assuming a weighted average life of 19.1 years) consistent with the trailing 12-month (TTM) constant default rate (CDR), utilized in the maturity stresses. Fitch applies the standard default timing curve in its credit stress cash flow analysis. The claim reject rate is assumed to be 0.43% in the base case and 2.7% in the 'AAAsf' case.

The TTM average levels of deferment, forbearance, income-based repayment (before adjustment) and constant prepayment rate (voluntary and involuntary) are 6.8%, 15.3%, 14.4% and 18.4%, respectively, which are used as the starting point in cash flow modelling. Subsequent declines or increases are modelled as per criteria. The borrower benefit is assumed to be approximately 0.1%, based on information provided by the sponsor.

Basis and Interest Rate Risk: Fitch applies its standard basis and interest rate stresses to this transaction as per criteria.

Payment Structure: Credit enhancement (CE) is provided by excess spread, overcollateralization and for the class A notes, subordination. As of the October 2016 distribution date, total parity is 104.0% (3.9% CE) and senior parity is 107.2% (6.7% CE). Liquidity support is provided by a reserve account sized at $1,581,087. The reserve account balance is required to be maintained at the greater of (i) 0.80% of the pool balance as of the last day of the related collection period and 0.15% of the initial pool balance through the June 25, 2019 distribution date, and (ii) the greater of 0.25% of the pool balance as of the last day of the related collection period and 0.15% of the initial pool balance on the July 25, 2019 distribution date and any other distribution date thereafter.

Maturity Risk: Fitch's student loan ABS cash flow model indicates that the notes are paid in full on or prior to the legal final maturity dates under the commensurate rating scenario.

Operational Capabilities: Day-to-day servicing for the trust's entire portfolio is performed by Great Lakes Educational Services Inc. (72.3%), and PHEAA (27.7%). Fitch believes both are acceptable servicers of FFELP student loans.

RATING SENSITIVITIES

'AAAsf' rated tranches of most FFELP securitizations will likely move in tandem with the U.S. sovereign rating, given the strong linkage to the U.S. sovereign by nature of the reinsurance and SAP provided by ED. Sovereign risks are not addressed in Fitch's sensitivity analysis.

Fitch conducted a CE sensitivity analysis by stressing both the related lifetime default rate and basis spread assumptions. In addition, Fitch conducted a maturity sensitivity analysis by running different assumptions for the IBR usage and prepayment rate. The results below should only be considered as one potential model implied outcome as the transaction is exposed to multiple risk factors that are all dynamic variables.

Credit Stress Rating Sensitivity

--Default increase 25%: class A 'AAAsf'; class B 'Asf';

--Default increase 50%: class A 'AAAsf'; class B 'Asf';

--Basis Spread increase 0.25%: class A 'AAAsf'; class B 'Asf';

--Basis Spread increase 0.50%: class A 'AAAsf'; class B 'Asf'.

Maturity Stress Rating Sensitivity

--CPR decrease 50%: class A 'AAAsf'; class B 'AAAsf';

--CPR increase 100%: class A 'AAAsf'; class B 'AAAsf';

--IBR Usage increase 100%: class A 'AAAsf'; class B 'AAAsf';

--IBR Usage decrease 50%: class A 'AAAsf'; class B 'AAAsf'.

Stresses are intended to provide an indication of the rating sensitivity of the notes to unexpected deterioration in trust performance. Rating sensitivity should not be used as an indicator of future rating performance.

DUE DILIGENCE USAGE

Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch 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. 01 Sep 2016)

https://www.fitchratings.com/site/re/886006

Global Structured Finance Rating Criteria (pub. 27 Jun 2016)

https://www.fitchratings.com/site/re/883130

Rating U.S. Federal Family Education Loan Program Student Loan ABS Criteria (pub. 10 Nov 2016)

https://www.fitchratings.com/site/re/889777

Related Research

Edsouth Indenture No. 8, LLC, Series 2014-4 - Appendix

https://www.fitchratings.com/site/re/836228

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1015614

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1015614

Endorsement Policy

https://www.fitchratings.com/regulatory

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