S&P says monitoring all SIV ratings, valuations

By Richard Barley

LONDON, Aug 29 (Reuters) - Standard & Poor's is monitoring the performance of structured investment vehicles (SIVs) and fluctuations in the liquidity and valuations of their assets, and will take further ratings actions as appropriate, a spokesman for the agency said on Wednesday.

On Tuesday, the agency dished out steep cuts in its ratings on Cheyne Finance, an SIV run by British hedge fund Cheyne Capital Management, after the vehicle was forced to start selling assets to pay down debt due to losses on its portfolio.

The downgrades came just two weeks after the agency affirmed Cheyne's ratings along with 29 other SIVs, saying that the structures were weathering the recent market turmoil.

"As we have indicated previously, ratings on SIVs are significantly impacted by the market trends that drive NAV (net asset value), even when -- as in this case -- the underlying portfolio maintains its credit quality," said Martin Winn, a spokesman for S&P, in an emailed statement.

"It is the sharp recent fall in market valuations of high grade securities that has caused the NAV to suffer, and there is no way to say when that pressure will abate or whether it will intensify."

Winn said each SIV was different, with different levels of cushion regarding NAV values and different exposures to varying markets.

"We will continue to closely monitor SIVs' performance," he said.

The first SIV was launched in 1988. S&P noted on Aug. 14 that so far, the industry has weathered many crises, including the difficult credit conditions of 1990-1991, the collapse of Long-Term Capital Management in 1998 and the September 11, 2001, attacks.

For a factbox on SIVs, please double click on [ID:nL29931528]. For a story on Cheyne Finance, please double click on [ID:nL29912169].