Reflecting further deterioration in the Structured Investment Vehicles (SIVs) market, Moody’s Investors Service announced that it could cut the ratings on the most junior debt issued by six SIVs.
SIVs are off-balance sheet vehicles set up mostly by banks that issue a combination of senior debt and capital notes. The proceeds are invested in long-term securities that are mainly asset-backed securities and bank debt.
Moody’s ratings cut affects debt issued by HSBC’s Asscher Finance, WestLB’s Harrier and Kestrel, Bank of Montreal’s Links Finance, Banque AIG's Nightingale Finance and Societe Generale's Premier Asset Collateralized Entity. Holders of this type of debt are not likely to benefit from restructuring proposals.
SIVs have been one of the biggest victims of the credit crunch. All of the notes under review are already rated in the “junk” category, between Ba2 and Caa3. The trouble for SIVs began when their funding dried up and the value of their assets fell, forcing sponsoring banks to rescue them by launching restructurings, and causing many to declare death for the SIV business.
Holders of SIV capital notes agreed to bear the initial losses on the portfolio of assets which mitigated losses for senior debt holders but Moody’s said those holders have been further hurt by market turmoil.
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