The restructuring of structured investment vehicle, SIV Portfolio plc, which was formerly known as Cheyne Finance plc, could pave the way for similar transactions. This is not only the case for the SIV sector but for other restructurings in CDOs as well as the broader structured finance market.
Although assets were auctioned at low prices in the recent Cheyne SIV liquidation, the restructuring provided existing Cheyne SIV senior creditors with the flexibility on what to do with their assets.
According to Clifford Chance's Head of U.S. Financial Products Steven Kolyer, for a creditor who did not take cash upon the SIV's liquidation, this particular restructuring allowed a creditor to exchange its old security for a new one in the form of a passthrough note. "One of the key attributes of the new security is that it provided each holder with the option to exchange the new security for such holder's pro-rata share of the SIV's assets," he explained.
Kolyer added that this structure is unique in that if a creditor decides that it can achieve a more favorable recovery through asset retention or sales at a later point in time, the structure gives the investor flexibility to receive its share of the SIV's portfolio of securities at a future date through the exchange option, then keep or sell individual securities over time thereafter. "This allows each investor to manage what is referred to as its âvertical slice' of the SIV's liquidating portfolio," Kolyer said.
Clifford Chance was hired by Goldman Sachs to advise on the restructuring of this SIV Portfolio. The law firm was also hired to advise in the pending Rhinebridge restructuring.
In a related report, UBS analysts said that the assets traded at low prices during the Cheyne liquidation. This was expected given the construction of the auction.
According to the report, in many cases, assets significantly better than tranches of the ABX traded at lower dollar prices. They noted that Cheyne -which has total remaining assets of $5.9 billion - had 21% of the holders choose the cash-out option at a price of $44, or a market value of approximately $500 million. Holders also got $18 in cash distribution from collateral paydowns last year, UBS reported.
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