Fitch Affirms EdSouth Indenture No. 3, LLC Senior Notes & Upgrades Subordinate Notes

Fitch Ratings affirms the ratings on the EdSouth Indenture No. 3, LLC senior notes at 'AAAsf' and upgrades the subordinate notes to 'AAsf' from 'Asf'. The Rating Outlook remains Stable for all outstanding notes.

Key Rating Drivers:

Collateral Quality: The trust collateral is comprised of 100% Federal Family Education Loan Program (FFELP) loans of which 10.18% are rehabilitated loans as of August 2014. In Fitch's opinion, the credit quality of the trust collateral is higher based on the 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 Stable Outlook on the notes is consistent with Fitch's affirmation of the U.S. sovereign rating at 'AAA' with a Stable Outlook.

Sufficient Credit Enhancement (CE): Transaction credit enhancement is provided by overcollateralization and excess spread that is sufficient to affirm the class A and upgrade the class B notes. In addition, the class A notes benefits from subordination from the class B notes. Upgrade to the class B notes is driven by the continuous increase in total parity as excess cash cannot be release from the trust until all the bonds are paid-in-full. Excess funds may be released once all of the notes have been paid-in- full. As of August 2014, reported senior and total parity is at 105.83% and 102.89%.

Adequate Liquidity Support: Liquidity support is provided by a reserve account sized at the greater of 0.25% of the pool balance and 0.15% of the initial pool balance As of August 2014, reserve account balance is $863,841.

Satisfactory Servicing Capabilities: Day-to-day servicing is provided by PHEAA for the majority of the portfolio, Georgia Student Finance Commission (GSFC), and Great Lakes. All have demonstrated adequate servicing capabilities.

Rating Sensitivities

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 buildup of credit enhancement driven by positive excess spread given favorable basis factor conditions could lead to future upgrades.

Initial Key Rating Drivers and Rating Sensitivity further described in the Pre-sale Report published on Oct. 16, 2012.

Fitch has taken the following rating actions:

EdSouth Indenture No. 3, LLC:

--Class 2012-2 A affirmed at 'AAAsf'; Outlook Stable;

--Class 2012-2 B upgraded to 'AAsf' from 'Asf'; Outlook Stable.

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

Applicable Criteria and Related Research:

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

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

--'Edsouth Indenture No. 3, LLC, Series 2012-2 (U.S. ABS)', dated Oct. 16, 2012;

--'Representations, Warranties, and Enforcement Mechanisms in Global Structured Finance Transactions -- Amended', dated April 17, 2012.

Applicable Criteria and Related Research:

Global Structured Finance Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=754389

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

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=750530

Edsouth Indenture No. 3, LLC, Series 2012-2 (US ABS)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=692142

Edsouth Indenture No. 3, LLC, Series 2012-2 -- Appendix

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=692191

Representations, Warranties, and Enforcement Mechanisms in Global Structured Finance Transactions

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=676496

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=901536

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