Gordian Knot has put up a good fight, weathering blow after blow amid the financial crisis. Its SIV, however, has finally had to call it a day, thus becoming the last independent SIV to go into receivership.

The Sigma vehicle managed to survive the financial markets over the past year by initially unwinding and selling part of its portfolio, making repo agreements and removing market value triggers to prevent any further forced selling linked to market deterioration.

Today, the vehicle's portfolio stands at $27 billion compared with $52.6 billion in July 2007.

On Sept. 19, Sigma notified Moody's Investors Service about a default related to one of its repo counterparties. This resulted in a close out of the respective repo contracts entered into by one counterparty, and has led other counterparties to follow suit. Sigma had 17 repo counterparties.

Moody's downgraded the respective senior ratings for commercial paper and medium term note programs to 'Ca' and 'Not Prime', from 'A3' and 'Prime-2' based on concerns that the notice of default would trigger the counterparties to cease their repo agreements under the cross default agreements.

"Repo counterparties will keep the collateral, which may prove to be a profitable purchase considering the average price of 68% versus market valuation at just below 93% - 64% are financials; the rest are ABS (of which 21% are CDOs)," Jean-David Cirotteau, an analyst at Societe Generale, said. "Fire sales from these counterparties could be limited, while senior noteholders could experience severe losses."

These senior creditors will suffer a fundamental loss, given the fact that losses achieved by repo counterparties due to unfavorable bids out on the market rank pari passu with senior creditor claims, and as such, reduce achievable recovery rates, Unicredit analysts said.

Moody's said it expected that significant losses for the medium term notes were a likely possibility as counterparties liquidate ABS assets under unfavorable market conditions to recover amounts owed by the SIV.

(c) 2008 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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