Could this be from short covering? Maybe the overseas exchanges will have to comply.
Rhinebridge Commercial Paper SIV May Not Repay Debt (Update1)
By Neil Unmack
Oct. 18 (Bloomberg) -- 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.
Rhinebridge, Cheyne Finance Plc and other SIVs, which borrow from the short-term commercial paper market to fund purchases of asset-backed securities, have struggled as investors retreated from all but the safest debt. SIVs have dumped about $75 billion of assets as a result, prompting U.S. Treasury Secretary Henry Paulson to organize an $80 billion bank-run fund to buy some of the securities.
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.
SIVs have different rules to protect investors and allow the fund time to recover from a market slump. An enforcement action is typically the last step for a fund, and is irreversible.
SIV Fund
JPMorgan Chase & Co., Citigroup Inc. and Bank of America Corp. this week agreed to set up the fund, which would help SIVs who can't roll over their commercial paper from having to sell off their holdings at fire sale prices. Commercial paper matures in 270 days or less.
Rhinebridge's mandatory acceleration event means all of the SIV's debt is now due, according to a company prospectus. The fund must now appoint a trustee to ensure that the interests of all secured bondholders are protected.
Dusseldorf-based IKB set up Rhinebridge in June to sell commercial paper to invest in securities with longer maturities and higher yields, including mortgage-backed debt.
As of late August, 79 percent of Rhinebridge's holdings were in the U.S. and 80 percent in mortgage-backed bonds, Fitch Ratings estimated in an Aug. 22 report. Eighty-three percent of the assets had the highest-possible AAA rating, Fitch said.
IKB had to be bailed out this year by a group led by German state-owned KfW Group because of potential losses related to failing subprime mortgages.
IKB's Troubles
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.
Yields on overnight asset-backed commercial paper, rated A1+ by S&P and P1 by Moody's Investors Service, the highest for such debt, rose to 5.15 percent yesterday, according to Bloomberg data.
That yield is 40 basis points more than the Federal Reserve's target rate for overnight loans between banks, compared with an average of about 8.5 basis points in the first half of the year. The wider difference signals that investors are still wary about holding asset-backed commercial paper. The yield fell to 5.12 percent today. A basis point is 0.01 percentage point.
The amount outstanding has tumbled 25 percent since the week ended Aug. 8 to $888 billion, according to the Federal Reserve in Washington.
To contact the reporter on this story: Neil Unmack in London at nunmack@bloomberg.net
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