Wednesday, 5 December 2007

Fitch slashes Ratings on Citigroup SIV

From Bloomberg:

Citigroup SIV's Junior Sedna Debt Cut to CCC by Fitch

Citigroup Inc.'s Sedna Finance Corp. had $867 million of junior-ranking debt downgraded 12 levels to CCC by Fitch Ratings after declines in the structured investment vehicle's assets.

The cut from Fitch comes as Moody's Investors Service considers its biggest wave of downgrades since subprime mortgages contaminated the bond market. Moody's said last week that it may lower its ratings on $105 billion of SIVs, including Sedna's $10.7 billion of senior debt and five more Citigroup funds.

Sedna's net asset value has fallen to 54 percent, eroding nearly all the protection the downgraded "second priority senior" notes gets from ranking above the lowest layer of debt, Fitch said in a statement today. The securities will start losing money if the Cayman Islands-based SIV sells $500 million of assets to repay senior-ranking debt, according to Fitch.

"The probability that the SPS notes will incur a loss has significantly increased over the recent weeks," Fitch said. Next year "there will be significant refinancing requirements that may need to be covered by the sale of assets."

Last week HSBC decided to take $35 billion worth of SIV's back on balance sheet and yesterday WestLB, HSH Nordbank bailed out $15 billion of SIV's.

So why doesn't Citi just do the same instead of relying on the super SIV? Basically because they can't afford to without getting more equity injections like the $7.5 billion they got last week. With more institutions taking steps to look after their own SIV's the super SIV idea is looking more and more like a Citigroup specific bailout idea.