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Moody's Downgrades SIVs

The net asset value of all the troubled debt funds has fallen as much as 15%, the agency says.

Ratings agency Moody's Investors Services on Friday downgraded or placed on review 20 structured investment vehicles, after a review of several troubled off-balance-sheet debt investment funds that have proven to be some of stickiest problems in the ongoing credit crisis.

Moody's, using updated methodology, reduced its estimate of current net asset value of all SIVs by 10 to 15 percentage points to reflect weakening values of any securities like asset-backed paper or collateralized debt obligations (CDOs) ultimately tied to mortgages. The ratings agency downgraded, placed on review for possible downgrade or confirmed the ratings of 79 debt programs, totaling about $130 billion, which amounts to 42% of all SIV debt.

The review, which began Nov. 7, came a few weeks after SIVs came into the spotlight on news that


(C) - Get Report

and other major banks were working with federal officials to set up a multibillion-dollar, industry-supported fund designed to stave off a fire sale of mortgage-based securities and other assets that became difficult to unload as the credit market dried up.

The fate of the super-SIV remains undermined, but U.K.-based

HSBC Holdings


became the first bank to bail out its SIV portfolio, saying earlier this week that it would shut down two funds and take $45 billion onto its balance sheets.

"Moody's has taken rating actions as a result of deteriorating credit and other market conditions," Moody's said in a statement announcing its actions. "It appears that the situation has not yet stabilized and further rating actions could follow. As with previous actions, the rating actions Moody's has taken today are not a result of any credit problems in the assets held by SIVs, but rather a reflection of the continued deterioration in market value of SIV portfolios combined with the sector's inability to refinance maturing liabilities."

HSBC SIVs were among the downgrades, two of which were slashed to the lower rungs of junk ratings or Caa2 and Ca, with net asset values cut by about 20% in both cases.

The ratings agency said it has observed continuing deteriorating conditions in all asset classes in SIV portfolios, including debt of financial institutions, CDOs, and other asset-basked securities. Financial institutions' debt suffered an average price decline of 1.6% between Oct. 19 to Nov. 23; asset-backed securities declined 0.7%; CDOs (excluding CDOs of asset-backed securities) 0.5%; and CDOs of asset-backed securities 22%.

SIVs are investment funds formally independent of the banks and other institutions that create them. Citi is one of largest holders of SIVs among U.S. banks.

Citi and partners

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Bank of America

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JPMorgan Chase

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last week were ready to start soliciting other financial institutions to pitch in on the effort, according to a report in the

Wall Street Journal



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is expected to manage the fund, according to the



In keeping with TSC's editorial policy, Rappaport doesn't own or short individual stocks. She also doesn't invest in hedge funds or other private investment partnerships. She appreciates your feedback. Click


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