Paragon Auto and Secured Finance (No1) plc (PSAF) recently issued its first euro-denominated transaction, which is secured on two asset classes. A U.K. special purpose vehicle, PSAF launched EURO285m and GBP26.33m floating-rate notes secured on 18,365 auto loans and secured loans.

Lead managers SG sold the deal, which was oversubscribed, in Europe. This included investors in the UK (26%), France (9%), Luxembourg (15%), and Germany (22%). "This is the first time Paragon has issued in euros, which opened up Paragon's existing investor base," said Lee Galloway at SG in London.

Paragon Car Finance and Paragon Personal Finance originated the loans to UK borrowers. At deal close the pool was around 52% auto loans and 48% secured loans, but this may change during the four year revolving period. The portfolio cannot be more than 75% auto loans, or 50% secured loans.

There is a call option on November 4, 2004, and all subsequent interest payment dates. Moody's Investors Service and Standard & Poor's Ratings Services have rated the notes.

By mixing asset classes, Paragon can securitise its assets sooner than if it waited for individual asset portfolios to reach a suitable size for a securitization. "Whilst at first glance the assets appear to be different, upon closer inspection the two sets of assets have a number of similar characteristics, so they can be securitised together," Galloway said.

Similar characteristics include: the underwriting and origination process; collection process; and similar expected lives (2.25 years and 3.66 years) of the underlying assets for the car loans and secured loans.

The notes are enhanced by an excess spread created by the difference between the income received by the issuer from the loans and its other investments and swaps, and interest owed by the issuer.

SG is also hedge swap counterparty. The FRN notes are secured on fixed rate loans and SG will cover any differences. SG will also cover the currency and interest rate exposure arising from the fact that the Class A notes are euro denominated, and Class B notes are sterling denominated. - courtesy of International Securitization Report

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