RBS to take Cheyne SIV

Royal Bank of Scotland has won exclusive rights to restructure Cheyne Finance - a structured investment vehicle (SIV) managed by Cheyne Capital Management, the London-based hedge fund and collateralised debt obligation (CDO) manager.

The bank, which has not arranged or managed an SIV to date, has signed an exclusivity agreement with the receiver, accountancy firm Deloitte.

The vehicle suffered a net asset value (NAV) drop from 91% on July 27 to 30% on October 18 this year. The losses stem from exposure to US residential mortgage-backed securities (at 47% of total exposure, with 18% of that wrapped by financial guarantors) and CDOs of asset-backed securities, which account for 7% of the portfolio, according to a Moody's release on October 23.

The receiver had been in discussion with three other banks, according to a spokesman at RBS in London. The restructuring will involve the sale of the SIV portfolio to avoid the forced sale of assets under the mandatory acceleration event declared on October 17, when the trustees warned falls in asset prices meant the SIV risked being unable to repay its commercial paper from its remaining portfolio. The portfolio will pass into the ownership of a new special purpose vehicle and benefit from new capital entering the structure through new investors.

The existing commercial paper and medium-term notes will have extended maturities under the proposal, which is expected to be finalised on Monday or Tuesday next week. The news follows the collapse of a proposed restructuring by Barclays Capital of a SIV-lite it had arranged called Mainsail II on October 4. That vehicle was managed by London-based Solent Capital Partners, and although the restructuring was backed by the security trustee, investors rejected the proposal.

 See also: Leaking like a SIV
Subprime contagion
SIV-lite vehicles take massive hit from S&P