Royal Bank of Scotland has entered exclusive talks to take over a $7bn investment vehicle that became one of the first casualties of the summer credit crisis.
Cheyne Finance, the structured investment vehicle, or SIV, managed by the London hedge fund Cheyne Capital, said the negotiations followed "detailed discussions" with a number of bidders and consultation with the informal creditors' committees".
RBS proposes to set up a new vehicle that would buy the SIV's portfolio and be financed by existing and new investors. The vehicle called in administrators from Deloitte in September after it was forced to begin liquidating assets to repay debts. A sale to RBS would allow Cheyne Capital to get the SIV off its hands, albeit at what is likely to be a heavy discount. The SIV could, however, continue to be managed by Cheyne Capital and be simply refinanced by RBS.
The development comes as a trio of Wall Street giants – Citigroup, JP Morgan and JP Morgan Chase – struggles to gather support for a proposed $75bn superfund to bail out the troubled SIV sector and avoid a forced global firesale of assets.
SIVs, pioneered in 1988 by a pair of Citigroup bankers, are vehicles that rely on the ability to take out short-term loans in the international debt markets which they use to then invest in long-term instruments that produce higher yields.
Many SIVs have invested almost solely in residential commercial backed paper, which are packages of American home loans. As the housing crisis has taken hold in the US and homeowners defaulted on their mortgages, investors balked at throwing more money into instruments collateralised by this rapidly deteriorating assert class.
If SIV asset values fall below certain predetermined value thresholds, then automatic assets sales are triggered, which is what happened in Cheyne Finance's case. Over the next nine months, up to $350bn in debt issued by SIV's comes due.Reuse content