Another Day, More Insolvent SIVs

Posted by urbandigs

Thu Oct 18th, 2007 05:30 PM

A: Call me paranoid, but something is going on at the core of the credit mess here. The newest SIV casualties who can't repay their bondholders debts are Rhinebridge Commercial Paper PLC & Tango Finance Ltd.. Why is this important? Its a signal that things are NOT ok in credit land. As you all found out in early August what this means for the consumer in terms of tighter standards, fewer loan options, mandatory doc checks and higher rates, it IS IMPORTANT! It seems we are now in the beginning phase of what may eventually be called the insolvency era. But hey, whats a few billion amongst friends?


The news from Bloomberg:

Rhinebridge Plc, the IKB Deutsche Industriebank AG structured investment vehicle that has lost about half its value, is unlikely to repay all its debt.

Rhinebridge suffered a "mandatory acceleration event" after IKB's asset management arm determined the SIV may be unable to pay back debt coming due, the Dublin-based fund said in a Regulatory News Service release. Rhinebridge had $1.2 billion in commercial paper outstanding as of Oct. 5, according to Fitch Ratings. As of late August, 79 percent of Rhinebridge's holdings were in the U.S. and 80 percent in mortgage-backed bonds, Fitch Ratings estimated in an Aug. 22 report. Eighty-three percent of the assets had the highest-possible AAA rating, Fitch said.
If Fitch had a "AAA" rating on 83% of this outfit's assets, what does that say for the well-being of all the assets out there that are NOT of the highest credit rating? Truly amazing.

From the Wall Street Journal:
Thursday, two European funds which as of this summer had about $16 billion in assets were in the process of selling off some of those assets or on the verge of doing so, people familiar with the situation said. Tango Finance Ltd., one of the world's largest SIVs, has been selling assets, said a spokesman for Dutch bank Rabobank, which runs the SIV. It had $14 billion in assets as of July.

Tango was set up in 2002 by Rabobank, with the help of Citigroup. The SIV had senior debt totalling $14 billion as of July 13, according to a September Citigroup research report. Based on that report, Tango is the eighth-largest SIV globally.

Tango is repaying debt using so-called repo financing, in which securities are used as collateral for loans, and selling assets, a spokesman for Rabobank said Thursday.

"Over recent months, the SIV sector has been under considerable pressure as liquidity has dried up" in the asset-backed commercial paper market, said the spokesman Jan-Willem ter Avest in an email.
On a side note, the ABX Indexes are absolutely plunging; and continued the fall again today! Something is cooking as appetite for risk is once again in the process of being repriced. There is just no interest in bonds backed by mortgage securities. Assuming there are more troubled outfits out there, what happens when these guys are forced to mark their holdings to market in a very troubled environment with no bids? As a commenter of CR states:
In other words, the market thinks this tranche is toast, it has for months, the argument now is how long until it defaults. Current prices suggest about 14 more months. Is it significant these are trading lower. OF course. But bear in mind current levels suggest the market thinks the BBB-, BBB and A tranches are gone; it is only arguing about the time of death.
So when will the time of death be? I have no clue but I do know that the core of the credit markets are undergoing serious distress right now and it's got to trigger some type of adjustment in equity markets in the near future.

If there are any readers of this site involved at structured credit desks, hedge funds, or any other type of trading that is related to this topic, PLEASE COMMENT ON WHAT YOU ARE SEEING?