The fifth transaction off the PREPS platform - PREPS 2006-1 - a pan-European cash deal backed by subordinate small and medium enterprise loans, is gearing up to debut in the market next month. A distinguishing feature of the transaction is that its SME loans are deeply subordinated, with a Fitch Ratings weighted average portfolio rating of BB+'/'BB.' The portfolio of SME loans, which will remain static after the deal's close, was selected by investment services provider Capital Efficiency Group AG; the offering is similar to PREPS 2005-2, which priced last December.

The three classes of fixed and floating-rate notes totaling 321 million are scheduled to mature in July 2013, and will be issued out of the platform's Ireland-based SPV. JPMorgan Securities is acting as the swap counterparty and account bank, as well as the trustee. The portfolio includes 61 subordinate instruments to 46 German, three Austrian, four Swiss, five Italian, one Luxembourg and two Belgian companies. The deal has a rather large concentration of single borrowers within its portfolio, compared to other deals in the sector. The five largest single borrowers in the portfolio entered into financing agreements totaling 12 million each - amounting to 3.74% of the portfolio's notional; the smallest single borrower amounts to 1 million - or 0.31% of the portfolio's notional.

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