Cheyne $20 Billion Program May Liquidate After Losses, S&P Says
By Darrell Hassler
Aug. 28 (Bloomberg) -- A Cheyne Capital Management Ltd. commercial paper program with as much as $20 billion in assets, including real estate securities, may liquidate because of losses, Standard & Poor's said.
The program, called Cheyne Finance LLC, is a structured investment vehicle that purchases securities by issuing short-and medium-term debt, S&P said in a statement today. It breached a test based on losses in the portfolio that may force liquidation, S&P said. London-based Cheyne Capital is the portfolio manager.
Stuart Fiertz, a founder of Cheyne Capital, didn't return requests for comment.
Losses in the value of securities backed by subprime mortgage and funded by short-term debt have caused commercial paper yields to soar this month. There are about $385 billion outstanding in structured investment vehicles and 23 percent of their assets are mortgage securities or collateralized debt obligations that often hold mortgages, according to an Aug. 9 report by Bear Stearns Cos.
Near-term sales from the vehicles because of losses in the market value of subprime mortgage securities may total $23 billion, Bear Stearns said.
The Cheyne portfolio is primarily invested in ``real estate securitizations'' and none of the assets have had downgrades, S&P said. Structured investment vehicles often aren't backed by credit lines from banks like asset-backed commercial paper programs, of which there is $1.05 trillion outstanding.
S&P cut the credit rating on the commercial paper issued by Cheyne Finance by two levels to A-2 from A-1+. The rating on senior debt was reduced six levels to A- from AAA, the highest rating.
Aug. 30
The average yield on the highest rated asset-backed commercial paper with one-day maturity has risen 0.71 percentage point this month to 6.04 percent as investors have fled funding linked to subprime mortgages, according to Bloomberg data.
Cheyne Capital may begin liquidating assets and by Aug. 30 will estimate expected proceeds from future asset sales, S&P said.
Queen's Walk Investment Ltd., a fund run by Cheyne Capital that invested in mortgages, reported in June a loss of 67.7 million euros ($92 million) in the year ended March 31.
Securities of subprime mortgages to people with poor credit or high debt have lost value because of the highest delinquency rate in four years. Commercial paper is debt due in 270 days or less.
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