LONDON, Oct 23 (Reuters) - Moody’s Investors Service on Tuesday slashed its credit ratings on Axon Financial Funding, a structured investment vehicle (SIV), after its capital net asset value plummeted.
Moody’s said in a statement it has cut Axon’s commercial paper to Not Prime from Prime-1. It has cut its medium term notes to Ba3, three notches below investment-grade status, from triple-A. And it has cut its mezzanine capital notes to Ca, 10 notches below investment-grade, from A1.
The ratings were only first assigned in March of this year. Axon Finance is managed by Axon Asset Management Inc., a New-York based asset management company, according to Moody’s.
Structured investment vehicles, which hold some $320 billion in assets, issue a mixture of senior-ranking short and medium-term debt and lower-ranking capital and use the proceeds to invest in longer-term debt, mainly asset-backed securities and bank debt.
They have been hit by a double whammy as the credit turmoil of the summer both cut off their access to short-term funding and caused the value of their assets to fall as contagion from the U.S. subprime mortgage crisis spilled over to all asset-backed and financial debt.
Moody’s said Axon’s capital net asset value had fallen to 39 percent on Oct. 18 from 96 percent on July 27.
The figure is calculated as the difference between the market value of the assets and the face value of senior debt outstanding, expressed as a percentage of paid-in capital. It said the “precipitous drop” was a result of the vehicle’s holding of U.S. residential mortgage backed securities, which make up 57 percent of the portfolio, and collateralised debt obligations backed by asset-backed securities (CDOs of ABS), which are 6 percent of the portfolio.