Fitch Ratings calculated that the Structured Investment Vehicle (SIV) market has disposed of 95% of the $400 billion of its assets since July 2007, a release from the rating agency said.
Despite initial market concerns that the SIV failure would result in a mass fire sale of assets, Glenn Moore, a director in Fitch’s European structured credit team, said the asset disposals have been “relatively orderly” the past two years.
Moore said that the removal of the oversupply of assets from the SIV sector is one less factor weighing on structured finance valuations.
The rating agency reported that there has been much deleveraging of the SIV market. Twenty-one years were needed for the SIV sector to grow to $400 billion of assets under management, but only two were needed to dispose of the majority of the assets.
This led to a significant loss for SIV investors, where capital note holders suffered a 100% loss, and investors suffered an average of 50% loss (though there is a range from negligible losses to losses approaching 100%), in cases where the SIVs were unable to consolidate or restructure the senior note.
Fitch said the maturity mismatch of the SIV — in that it offered investors stable returns by investing in highly rated, illiquid assets funded by shorter dated liabilities — ultimately led to its demise.
And without the ability to refinance maturing debt in the capital markets, SIVs had limited options available.
Of the 29 SIVs, five were restructured, seven defaulted on payments to their senior notes, 13 were supported by the sponsoring bank (some of which have delivered), and Fitch estimates that the remaining four have also delevered.