Cheyne Finance has become the first structured investment vehicle to stop repaying its short-term debt, after the administrator of the troubled fund won court backing to declare it in breach of insolvency tests, the Financial Times reports.
The move came as Cheyne Finance entered final negotiations with four banks bidding for its assets, which stood at ₤3.2 billion at the beginning of last month. The payments hold will hit short-term debt markets just as they recover from the summer credit squeeze, the Times says.
Neville Kahn, a partner at Deloitte, the administrator, told the Times the insolvency would not force it to sell assets at firesale prices and would make it easier to push through a sale.
“It will mean that we will get to a solution quicker,” he says. “We hope to have a recommended deal very shortly to communicate to creditors.”
The SIV still has $1.3 billion of cash and could have continued to repay maturing commercial paper until at least the end of this month. The administrator won backing from the High Court in a sealed judgment on Wednesday, the Times reports.
But this decision could be seen as controversial. Many SIVs would be insolvent if a similar interpretation — using a balance sheet measure, in spite of the SIV’s cash pile — was applied in subsequent decisions.
Kahn did not disclose to the Times which banks were bidding or at what prices, but said it was wrong to assume the holders of mezzanine debt – the lowest-rated tranche – would be wiped out.
The SIV, managed by $12 billion hedge fund Cheyne Capital, is among several struggling vehicles. Two SIV-lites trying to restructure have turned to Barclays for support, although Golden Key, set up by Swiss-run hedge fund Avendis, is in dispute with the bank about whether it has to repay a loan it drew down, reported to be worth $250 million. Mainsail II, an SIV-lite run by London hedge fund Solent, had a rescue plan backed by Barclays turned down by investors, the Times says.