OREANDA-NEWS. Fitch Ratings has taken the following rating actions on SLM Student Loan Trust 2004-7 (SLM 2004-7):

--Class A-5 affirmed at 'AAAsf'; Outlook Stable;

--Class B 'AAAsf'; Rating Watch Negative maintained.

While the class B notes miss their legal final maturity date under Fitch's maturity and credit base case scenarios, the Rating Watch status is maintained based on anticipation of sponsor support, given the notes' eligibility for the clean-up call and Navient's historical commitment to the performance of its securitizations. This constitutes a criteria variation, as Fitch is not downgrading the notes to 'CCCsf' or below. Fitch expects to resolve this Rating Watch within six months either through a downgrade of the notes to low speculative grade or an affirmation resulting from sponsor action that remedies the situation.

Additionally, the trust has entered into a revolving credit agreement with Navient by which it may borrow funds at maturity in order to pay the notes off. Because Navient has the option but not the obligation to lend to the trust, Fitch cannot give full quantitative credit to this agreement. However, the agreement does provide qualitative comfort that Navient is committed to limiting investors' exposure to maturity risk.

KEY RATING DRIVERS

Collateral Quality: The trust collateral comprises 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. Fitch's current U. S. sovereign rating is 'AAA' with a Stable Outlook.

Credit Enhancement: Credit enhancement (CE) is provided by excess spread and for the class A notes, subordination provided by the class B notes. As of June 2016, Fitch calculated total and senior parity ratios (which include the reserve fund) are 108.17% (7.56% CE) and 280.60% (64.36% CE), respectively. The transaction is in turbo as pool factor is less than 10%, so all excess spread is used to pay down the notes.

Liquidity Support: Liquidity support is provided by a reserve account, sized at its floor of $1,500,060.

Servicing Capabilities: Day-to-day servicing is provided by Navient Solutions, Inc. (formerly known as Sallie Mae, Inc.). Fitch believes Navient to be an acceptable servicer of FFELP student loans.

CRITERIA VARIATIONS

For transactions in surveillance, Fitch will treat certain assets such as claims filed as short-term assets in its cash flow analysis. Given that Fitch's current criteria is silent on the treatment of such assets, this treatment is considered a criteria variation.

Under the 'Counterparty Criteria for Structured Finance and Covered Bonds', dated July 18, 2016, Fitch looks to its own ratings in analyzing counterparty risk and assessing a counterparty's creditworthiness. The definition of permitted investments for this deal allows for the possibility of using investments not rated by Fitch, which represents a criteria variation. Since the only available funds to invest in are those held in the Collection Account and the funds can only be invested for a short duration of three months given the payment frequency of the notes, Fitch doesn't believe such variation has a measurable impact upon the ratings assigned.

Although the class B notes miss their legal final maturity date under Fitch's maturity and credit base case scenarios, Fitch is not downgrading the notes to 'CCCsf' or below for the reasons described above, which constitutes a criteria variation.

RATING SENSITIVITIES

Since the FFELP student loan ABS relies 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, basis risk, and loan extension risk account for the majority of the risk embedded in FFELP student loan transactions. Additional defaults, basis shock beyond Fitch's published stresses, lower than expected payment speed, and other factors could result in future downgrades. Likewise, a buildup of CE driven by positive excess spread given favorable basis factor conditions could lead to future upgrades.