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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