Representing a departure from the norm for the net interest margin sector, Lehman Brothers has begun marketing a NIM backed by loans to small businesses. While synonymous with the home equity sector, small business loans offer more reliable flows from prepayment penalties, according to a ratings analyst who worked on the deal. A Lehman syndicate official declined to comment on the transaction, as it has yet to close.

The $35 million note is backed by the excess spread and prepayment fee cashflows from a recent $415 million small commercial real estate loan securitization out of the Lehman Brothers Small Balance Commercial trust. One of the advantages of attaching the NIMs to small business loans is that, in comparison to home equity loans, there are few regulations relating to the collection of prepayment fees. "Prepayment fees on commercial loans such as small businesses do not have the various federal and state legal and regulatory issues which apply to consumer loans such as residential mortgages and, as such, the ability to collect prepayment fees is not materially in doubt," wrote Michael McDermitt, assistant vice president with Moody's Investors Service.

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