Moody's Investors Service downgraded Sigma Finance's Gordian Knot-managed SIV senior ratings to A2'/P2' from Aaa'/'P1' following a review of credit enhancement and impending liquidity problems.
Sigma was placed on watch negative by both Moody's and Standard & Poor's, while Fitch Ratings removed its rating altogether earlier this year. It was the last remaining vehicle not to have entered either a restructuring/bail-out or enforcement scenario.
Deutsche Bank analysts said that, unlike the typical SIV structure, the Sigma vehicle had no market value trigger and has been permitted to use repurchase agreements more freely. Moody's said that Sigma had about $14 billion, or roughly 34%, of the total portfolio financed through repo lines to 17 counterparties with an average maturity of seven months and has around $20 billion of debt maturing between now and the end of September 2008. The rating agency said it was concerned that, as the credit squeeze continues, repo facilities might be hard to renegotiate and that $20 billion of debt maturing in September might be more difficult to refinance.
The vehicle's assets comprised 11% of prime U.K., Dutch and Australian RMBS alongside 15% CDOs, 5% credit cards and 5% CMBS. Societe Generale analysts estimated that given its total portfolio size of roughly $39 billion, the SIV could hold around GBP2.7 billion ($4.3 billion) of prime RMBS.
"Of most interest to many will be the potential supply of paper in secondary," SocGen analysts said. "We expect that Sigma will continue to place supply pressure on the market while many SIVs are now holding back sales, awaiting better price levels."
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