Standard & Poor’s late on Tuesday downgraded Cheyne Finance’s ratings sharply, with the issuer rating falling to A- from the top AAA, after the SIV told investors and ratings agencies it had breached its major capital loss test and had to liquidate assets to repay outstanding debt.
SIVs raise a mixture of short-term and medium-term debt to invest in longer-term securities, often in the asset-backed market. Fears have risen over this strategy as fallout from the U.S. subprime mortgage crisis has battered both the values of the securities SIVs invest in and reduced investor appetite for short-term debt.
The wind-down of the Cheyne Finance vehicle comes just two weeks after S&P said that ratings on SIVs — including the Cheyne vehicles — were weathering market disruption. The agency last week slashed its ratings on two so-called SIV-lite vehicles — Golden Key and Mainsail II — as they too were being forced to sell assets after being unable to raise new short-term funding
