Educational Services of America prcied $201 million of asset-backed securities backed by Federal Family Education Loan Program (FFELP) rehabilitated student loans.

Moody's Investors Service and Fitch Ratings have assigned provisional ratings of ‘Aaa’/ ‘AAA’ respectively to the class A notes and  ‘A3’ / ‘A’ respectively to the class B notes to be issued by Edsouth Indenture No. 5, LLC, Series 2014-1. According to Thomson Reuters the class A's priced at 70 basis points over the one-month Libor and the class B notes priced at 100 basis points over the one-month Libor.

The rehabilitated student loans are guaranteed by the U.S. Department of Education for a minimum of 97% of defaulted principal and accrued interest. However, rehabilitated FFELP loan pools experience a higher net loss than pools of non-rehabilitated FFELP loans because “they are expected to default at a significantly higher rate  than non-rehabilitated loans,” according to Moody’s.

In the Edsouth deal, for example, the expected net loss on the rehabilitated FFELP loan pool to be securitized is approximately 1.3% compared to non-rehabilitated FFELP loan pools, for which Moody’s typically expects a net loss of less than 0.50%.

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