Thursday, 22 November 2007

Last week the slide in the Asset Backed Commercial Paper market slowed to a mere $600m down from $29.5 billion the previous week. However I would suggest that was more of a pause than a bottom with the amount of dodgy SIV paper still floating around. Below is an example, from Rueters:

Fitch cuts Axon Financial debt to "D" on liquidation

Fitch Ratings cut debt of Axon Financial, a structured investment vehicle, to default status on Wednesday after the trustee decided to liquidate the portfolio due to major losses.

Bank of New York Mellon (BK.N: Quote, Profile, Research) is the security trustee, Fitch said. Fitch cut various Axon Financial debt to default status, including US and Euro commercial paper and medium-term note programs, Fitch said.

"The rating actions follow the security trustee's declaration of an automatic liquidation event in light of the rapid decline in the portfolio market value," Fitch said.

Axon Financial, managed by New York asset management firm Axon Asset Management, has around $8.5 billion of commercial paper and medium-term notes outstanding, Fitch said last month.

"The 'D' rating reflects the fact that all senior liabilities became due and payable upon such declaration and that such payment has not been made," Fitch said.

Axon is a SIV that takes leveraged credit risk by investing in a portfolio including commercial paper, medium-term notes and other debt.

Axon Financial's portfolio has more than a third of assets in residential mortgage-backed securities, followed by monoline-wrapped securities, collateralized debt obligations and commercial mortgage-backed securities.

Those SIV's without the backing of a Citigroup are destined to follow the same path as Axon. That's not to say that Citi's SIV's are out of the woods yet, they are just prolonging the pain.