While details of bailout structures, such as the U.S.-based M-LEC, or Super SIV, have been slow to surface, problems persist on the SIV front. The latest casualties come via the London-based hedge fund manager Cheyne Capital's Cheyne Finance SIV, which declared a default last week just as IKB's Rhinebridge entered into enforcement.

Cheyne's paper problems came into sharp focus on Oct. 17, when the vehicle announced that it was not going to repay maturing commercial paper according to schedule, putting it in breach of solvency tests that have lead to Standard & Poor's downgrading all of its notes to "D." According to the rating agency, Cheyne was still holding $6.786 billion of senior liabilities, comprising $1.347 billion of CP, $5.439 billion of medium-term notes and $275 million of liquidity facility to be repaid, with senior liabilities worth $720 million in mezzanine and junior capital notes. This indicates that there may still be sufficient assets to pay all senior creditors. S&P reported that the current weighted average market value of the portfolio stands at 93% of par value, implying that a further deterioration of around 11% of value would be needed for there to be insufficient assets to repay senior debt.

Deloitte & Touche, acting as receivers for the SIV, announced that they had entered into an exclusivity agreement with the Royal Bank of Scotland to finalize the fate of Cheyne's SIV. According to the accountancy firm, RBS will set up a new vehicle to purchase the Cheyne portfolio, which is comprised of 56% RMBS, 6% CDO of ABS and 38% miscellaneous holdings, primarily corporate CDOs and CMBS. The new vehicle will be financed by new and existing investors.

The action follows detailed discussions with a number of different bidders over the past few weeks, after consultation with informal creditors' committees. According to Neville Kahn, a partner at Deloitte, the RBS deal ensures an orderly passage of Cheyne into the pages of history. The arrangement means, "We have no need for immediate liquidation of the assets within the book," he said.

No price range has been disclosed for the deal but, according to market reports, the value of the junior creditors' notes and some part of the mezzanine creditors' notes will be most at risk. But if the deal moves ahead it will provide a platform - other than the Super-SIV format currently being assembled on the U.S. front - for SIVs looking to avoid a fire sale of assets.

The Super-SIV concept is also meant to create a backdrop for less disruptive SIV unwinds or restructurings. While precise details on the underpinnings of the U.S.-based M-LEC remain unclear, analysts at Deutsche Bank said that SIV managers and ABCP investors at the moment look reluctant to "buy-in" on the structure.

"The very viability of the plan depends crucially on buy-in from SIV managers and ABCP investors, neither of which appears to be a given at this stage," Deutsche analysts said in a report.

M-LEC is expected to be ready for use in three months, but reservations remain about whether the structure will be affordable for market players. "Some concerns exist regarding the market price at which the conduit will buy assets, given that its participation will likely improve market prices, especially given the sizes suggested of $75 to $100 billion," Societe General analysts said in a report. "M-LEC structurers will extract fees from the vehicle, although SIVs will typically buy capital notes as part of asset sales to benefit from par reversion. Viability is likely to centre on how tight it can place ABCP into the market, combined with the cost of full liquidity facilities."

Next in Line

IKB's Rhinebridge SIV has breached its major capital loss test, which triggered enforcement of the vehicle. This has lead to a "mandatory acceleration event," which means that all the SIV's debt is now due and the security trustee must decide on what course of action to take in order to protect bondholders.

Fitch Ratings, S&P and Moody's Investors Service have all downgraded the senior debt of the IKB-sponsored SIV. Moody's also withdrew its rating on the medium term notes and downgraded the commercial paper to nonprime, taking corresponding action on the lower-rated capital notes. S&P downgraded all rated notes outstanding to "D."

According to Deutche Bank, at least 70% of book value would be required to repay the Rhinebridge CP in full, but based on data provided by the manager, S&P puts the current market value of the portfolio at 63%. About 79% of Rhinebridge's underlying assets were U.S.-related. Eighty percent were invested in RMBS, while roughly 21% of assets were backed by European assets, and just 12% comprised U.K. securitized product, according to the rating agencies.

(c) 2007 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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