Fitch Places PREPS 2006-1 plc Notes on RWN

LONDON--(Business Wire)--
Fitch Ratings has today placed PREPS 2006-1 plc's notes due July
2015 on Rating Watch Negative (RWN), as follows:

- EUR227,577,006 Class A1 notes (ISIN: XS0261122732): 'AAA' on
RWN,

- EUR860,224 Class A2 notes (ISIN: XS0261125081): 'AAA' on RWN,

- EUR40,000,000 Class B1 notes (ISIN: XS0261125677): 'BBB' on RWN,

- EUR9,000,000 Class B2 notes (ISIN: XS0261127376): 'BBB' on RWN.

Fitch released two new criteria on 30 April 2008: new Global
Criteria for Corporate CDO/CLOs and new Global Criteria for Cash Flow
Analysis in Corporate CDOs. At that time, Fitch noted that it would be
reviewing its ratings with these two new criteria to establish
consistency for existing and new transactions, and these rating
actions are a result of this review.

This transaction is a cash securitisation of subordinated loans to
medium-sized enterprises in six jurisdictions, namely Germany,
Austria, Switzerland, Italy, Belgium, and Luxembourg.

As of the review in July 2008, based on the latest portfolio
information available, the portfolio contained 57 performing obligors.
The largest exposure accounted for 4.1% of the performing portfolio
amount and the top three obligors 12.2% of the portfolio. Since
closing, there have been four defaults. Seven of the remaining assets
comprising 9.4% of the performing portfolio are under risk management
process as highlighted in the investor report dated July 2008. The
current amount of the principal deficiency ledger equals EUR20.2m. If
no further principal deficiency events occur, Fitch expects that this
amount would be repaid to Class A noteholders over the following six
interest payment dates. In Fitch's opinion, among five Fitch-rated
PREPS transactions PREPS 2006-1 plc and PREPS 2005-2 PLC are
performing worse than the rest.

The securitised debt instruments comprising the portfolio are
deeply subordinated. As a result, Fitch assumes no recovery in its
analysis. In addition to default simulations using its Portfolio
Credit Model (PCM), Fitch has performed cash-flow analysis to stress
possible interest rate and default timing patterns. The transaction
benefits from high levels of excess spread and a principal deficiency
mechanism for excess spread trapping. The structure is most sensitive
to front-loaded default timing. Based on this analysis, the credit
enhancement derived from both subordination and excess spread is not
sufficient to justify the current ratings of the notes.

The Negative Watch status is attributable to the CDO methodology
change and to performance deterioration as a result of one recent
default. Moreover, Fitch is reviewing its default assumptions for SME
CDOs (see comment "Fitch Reviewing Default Assumptions for European
SME CDOs" published on 29 July 2008). Accordingly, given the limited
number of obligors in this transaction, previously applied portfolio
approaches to assessing underlying credit quality may not sufficiently
reflect the risk of the individual borrowers. Additionally, the
resolution of the Negative Watch status will depend on the updated
credit profiles of the underlying obligors. Based on the latter two
points the guidance provided regarding the potential downgrade actions
is broad:

- Class A1 notes: Likely to be downgraded within the investment
grade range

- Class A2 notes: Likely to be downgraded within the investment
grade range

- Class B1 notes: Likely to be downgraded to the non-investment
grade

- Class B2 notes: Likely to be downgraded to the non-investment
grade

The resolution of the Negative Watch status will incorporate any
changes made to the portfolio or the transaction along with additional
portfolio migration. Updated annual financial information regarding
the underlying portfolio is expected to become available over the next
few months, which could have a material impact on the ratings.

Fitch's rating definitions and the terms of use of such ratings
are available on the agency's site, www.fitchratings.com. Published
ratings, criteria and methodologies are available from this site, at
all times. Fitch's code of conduct, confidentiality, conflicts of
interest, affiliate firewall, compliance and other relevant policies
and procedures are also available from the 'Code of Conduct' section
of this site.

Fitch Ratings
Jeffery Cromartie, CFA, +44 (0) 207 664 0072 (London)
Dr. Stephan Jortzik, +49 (0) 69 76 80 76 170 (Frankfurt)
Media Relations:
Julian Dennison, +44 020 7682 7480 (London)

Copyright Business Wire 2008