Friday, 19 October 2007

SIV's to accelerate Commercial paper unwind

My post earlier in the day on the shrinking ABCP market turned out to be rather timely, from Bloomberg:

Rhinebridge Commercial Paper SIV May Not Repay Debt
Rhinebridge Plc, the IKB Deutsche Industriebank AG structured investment vehicle that has lost about half its value, is unlikely to repay all its debt.

Rhinebridge suffered a ``mandatory acceleration event'' after IKB's asset management arm determined the SIV may be unable to pay back debt coming due, the Dublin-based fund said in a Regulatory News Service release. Rhinebridge had $1.2 billion in commercial paper outstanding as of Oct. 5, according to Fitch Ratings....

In August, Rhinebridge had to sell $176 million of its assets to cover obligations, and as much $320 billion of holdings by SIVs worldwide may be dumped if the market doesn't improve.

Rhinebridge said Oct. 12 that it breached a ``major capital loss test'' because its net assets fell to less than half the amount it owes holders of its subordinated capital notes after repaying senior debt. The company had five business days to remedy the breach before the enforcement event took place.

The emphasis in bold is mine. There is no way this SIV can repay its debt without a bailout of some sort. If you are wondering what a 'mandatory acceleration event' is, it simply means that the debt has been called in early by creditors because of the deteriorating position of the company. Earlier in the week Cheyne finance Plc joined the party:

Cheyne Finance Plc joins the party

Cheyne Finance Plc, the SIV managed by hedge fund Cheyne Capital Management Ltd., will stop paying its debts, a receiver from Deloitte & Touche LLP said on Oct. 17.

Deloitte is negotiating a refinancing of the SIV or a sale of its assets, according to an e-mailed statement. Cheyne Finance appointed receivers in September to oversee the management of its holdings after the SIV was forced to liquidate assets to repay maturing commercial paper.

The piper showed up in August to scare everybody and now he wants to be paid. We haven't seen the last of the Commercial paper market shrinking act yet.