State Street Bank and Trust, the trustee of Cheyne CLO Investments, said it suspended the use of the loan fund’s collateral account to meet a shortfall in payments due to noteholders.

 State Street and Cheyne CLO are considering whether the cash collateral account can be applied to interest due to be paid today, the bank said in a statement.

 The collateral account is a reserve held by CLO issuers to make up for shortfalls in payments.

 Cheyne CLO’s notes lost their investment-grade status at Standard and Poor’s after the fund reported default on March 31, 2009. The CLO in question issued securities with a face value of $140.5 million in 2005, according to Bloomberg data.

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