Fitch Assigns Ratings to Education Lending Group Student Loan Issues

Business Wire, Oct 31, 2003

Business Editors

NEW YORK--(BUSINESS WIRE)--Oct. 31, 2003

Fitch Ratings assigns the following ratings to Education Funding Capital Trust-II Education Loan Backed Notes:

-- $ 77,500,000 Education Loan Backed Notes, Senior Series A-1

'AAA';

-- $118,500,000 Education Loan Backed Notes, Senior Series A-2

'AAA';

-- $319,000,000 Education Loan Backed Notes, Senior Series A-3

'AAA';

-- $100,000,000 Education Loan Backed Notes, Senior Series A-4

'AAA';

-- $ 83,750,000 Education Loan Backed Notes, Senior Series A-5

'AAA';

-- $ 83,750,000 Education Loan Backed Notes, Senior Series A-6

'AAA';

-- $ 83,750,000 Education Loan Backed Notes, Senior Series A-7

'AAA';

-- $ 83,750,000 Education Loan Backed Notes, Senior Series A-8

'AAA';

-- $ 50,000,000 Education Loan Backed Notes, Subordinate Series B

'A'.

The ratings are based on the quality of the student loan portfolio, the credit enhancement within the trust, an interest rate swap agreement with Citibank (rated 'AA '/'F1 ' by Fitch), the ability of the transaction to pass cash flow stress tests at each rating level, and the transaction's sound legal structure. The ratings reflect the ability of the trust to redeem notes at maturity and pay timely interest. The ratings do not address the ability of the trust to pay carryover interest or the ability of the auction-rate noteholders to successfully redeem their notes on any auction date.

The transaction has a senior-subordinate structure, and the assets are cross-collateralized. The credit enhancement for senior debt consists of 5.0% subordination, the reserve account, and excess spread. The subordinate notes have credit enhancement in the form of the reserve account and any excess spread. The reserve account is sized at 1.0% of notes outstanding, with a $500,000 minimum, and was fully funded at closing. However, provided that senior parity is at least 105.0% and total parity is at least 100.5% on any distribution date, the reserve account requirement for such distribution date will be equal to the greater of 0.75% of the outstanding balance of all the notes and $500,000. Additionally, a capitalized interest account in the amount of $10.0 million was funded at closing and will be used to cover interest shortfalls through June 1, 2005.

The notes have been be issued pursuant to a trust indenture dated October 1, 2003 among the issuer, Education Funding Capital Trust-III; the indenture trustee, Fifth Third Bank (rated 'AA-/F1 ' by Fitch); and the eligible lender trustee, Fifth Third Bank.

The proceeds from the sale of the notes will be used to acquire approximately $975.0 million in Federal Family Education Loan Program (FFELP) consolidation loans (including principal and premium and unpaid interest accrued thereon) at closing and throughout the acquisition period ending November 30, 2003, make deposits to the reserve and capitalized interest accounts, and pay costs of issuance.

Interest on the series A-1 through A-3 notes is be indexed to the three-month London Interbank Offered Rate (LIBOR) plus 0.04%, 0.10% and 0.27%, respectively, and payable quarterly every 15th day of March, June, September, and December, beginning December 15, 2003. Principal on the series A-1 through A-3 notes will be applied sequentially and payable on each quarterly distribution date.

Interest on the series A-4 through A-8 and series B notes is taxable and determined by auctions to be held every 28 days and payable on the first day following each auction period. Generally, principal on the series A-4 through A-8 and B notes will be applied sequentially after all the series A-1 through A-3 notes are redeemed.

The trust has entered into an interest rate swap with Citibank, N.A. (rated 'AA /F1 ' by Fitch). The swap will be in effect for one year or less and have a notional amount of $485.0 million. The swap counterparty will pay to the trust floating quarterly payments indexed to one-month LIBOR, and in exchange the trust will pay to the swap counterparty 1.53% per annum.

The series A-4 through A-8 and B notes are subject to optional redemption on any auction date at the option of the issuer only after all series A-1 through A-3 notes are retired, provided that if any series A notes are outstanding, the series B notes may be optionally redeemed only if the senior parity ratio remains at least 105.0% and the total parity ratio remains 100.5%. Additionally, all series of notes are subject to mandatory redemption from acquisition moneys not expended by the end of the acquisition period ending November 30, 2003.

The legal final maturity date for each series of notes is as follows:

-- Series A-1 - December 15, 2008.

-- Series A-2 - December 17, 2012.

-- Series A-3 - March 16, 2020.

-- Series A-4 through A-8 and B - December 15, 2043.

The issuer is a Delaware statutory trust formed for the sole purpose of acquiring, owning, and managing student loans and the other related assets and issuing and making payments on the notes. The student loans acquired by the trust will have been originated or acquired by Education Lending Group, which is a public company that provides financial aid products to students, parents, and schools.