Standard Chartered was set to finalize the $7.2 billion liquidity injection to its troubled SIV called Whistlejacket. However, deeper losses in the underlying collateral have reversed the SIV's good fate.

Earlier this year, Standard Chartered said that it would provide the additional liquidity under a proposed restructuring of Whistlejacket subject to certain preconditions, which included that the SIV not be in receivership. BNY Corporate Trustee Services, the troubled SIV's security trustee, put the vehicle into receivership after it breached a capital note net asset value of 50%, which set off an automatic enforcement event.

"It seems to us that the remaining Whistlejacket investors were not quick enough in accepting the sponsor's proposal and are now finding their SIV in receivership," said Hans Vrensen, director of European securitization research at Barclays Capital. "In our opinion, this turn of events highlights the execution risk with complex SIV restructurings and might call into question recent announcements from other bank sponsors, including Citigroup and HSBC, regarding the support of their SIVs." Vrensen added that more detailed disclosure from each of the SIV sponsors about the exact nature of their SIV support should address these fears.

The Whistlejacket situation sheds more light on what risks restructurings could be exposed to. Details regarding the exact type of support proposed, the timing anticipated and the requirements from investors could be a good start in making these arrangements more transparent, according to Vrensen.

On a separate research note, Deutsche Bank analysts said that Standard Chartered is one of the few banks that did not propose a more complete bailout for its SIV following the credit crisis.

Whistlejacket's assets are down significantly to $7.15 billion from $18.2 billion as of the end of August, the dip partly resulting from asset sales. The vehicle's assets at the end of December comprised 40% financial debt with a minimum rating of single-A and 87% rated double-A or higher. It also had 7% monoline financial guarantor exposure (50% MBIA and 40% AMBAC), 48% ABS with a minimum rating of single-A and 98% rated double-A or higher. It also included 5% CDOs with a low exposure to subprime-related assets, all of which are super senior.

Creditors have appointed Deloitte & Touche to run the SIV. Deloitte and Standard Chartered were expected to meet by the end of last week to discuss a possible arrangement for Whistlejacket and avoid a fire sale of the assets, according to market reports.

"We continue to have confidence in the quality of Whistlejacket's assets," Standard Chartered's Finance Director Richard Meddings said in a statement last Monday. "We remain willing to have discussions with the receiver, once appointed, and hope to find a viable solution to ensure flexibility for Whistlejacket."

Standard Chartered will continue to discuss liquidity provisions for the SIV with the receiver. The bank also said the receivership and any future arrangements to provide liquidity to Whistlejacket won't have a "material impact" on its 2008 earnings or capital.

Meanwhile, Moody's Investors Service has downgraded the ratings assigned to the medium-term note and commercial paper programs of Whistlejacket Capital. The European and U.S. MTN programs have been downgraded to Ba2' on review with direction uncertain from Aaa' on review for possible downgrade. The program's European and U.S. commercial paper as well as its European and U.S. MTN programs' current ratings were cut to not prime' from Prime-1' on review for possible downgrade.

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

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