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RPT-UPDATE 1-Moody's may cut rating on $19 bln Dresdner vehicle

(Repeats story from Wednesday that did not display due to a technical glitch) (Adds Dresdner comment)

LONDON/FRANKFURT, March 12 (Reuters) - Credit rating agency Moody’s raised the pressure on Wednesday for Dresdner Bank to sort out the support it has promised for its $19 billion structured investment vehicle K2, by threatening to cut K2’s ratings.

Moody’s said in a statement it may cut K2’s top ratings, which would affect nearly $16 billion of the vehicle’s debt.

A downgrade would be an embarrassment for Dresdner and its parent, German insurer Allianz ALVG.DE, which only last month promised to support the vehicle, which has been hit by the turmoil in the global credit markets.

The ratings action was triggered by funding problems and a drop in the company’s portfolio market value, which has fallen to 96.1 percent on March 6, 2008, from 100.1 percent on July 27, 2007, the ratings agency said.

A Dresdner Bank spokesman said Moody’s announcement did not change the bank’s plans to wind down its structured investment vehicles (SIVs) business.

Other banks' SIVs have also run aground in the global credit market storm, with HSBC HSBA.L and Citigroup C.N moving to support their vehicles.

SIVs made money by financing purchases of high-yield, long-term assets with short-term commercial paper. The crisis has caused the value of long-term assets to fall and dried up short-term funding, leaving the vehicles in a financial bind.

The support facility Dresdner announced last month was aimed at ensuring that all of K2’s senior debt would be repaid, thus helping to ward off the kind of ratings downgrade that Moody’s is now contemplating.

Dresdner has already cut the size of K2 to $18.8 billion from over $31 billion in July last year. Its financial risks were limited, with its own investment in the vehicle only in the tens of millions of euros, the spokesman said.

But Moody’s made clear in its statement that it had yet to see the details of Dresdner’s support plan.

“Based on Moody’s preliminary review of initial drafts of the support facility, the company’s (K2’s) senior debt ratings could be confirmed if the support facility is put in place,” the agency said.

Asia-focused bank Standard Chartered STAN.L last month withdrew two proposals to rescue the $7 billion Whistlejacket SIV that was forced into receivership. Standard Chartered cited worsening market conditions for the withdrawal.


Moody’s said the nearly $16 billion of K2’s debt affected by the announcement consisted of medium-term notes currently rated Aaa and Prime-1, and commercial paper programmes rated Prime-1.

“A further price drop of approximately 2 percent in portfolio market value, assuming no further change in the market value of liabilities, would cause a breach of the Capital Loss Limit test,” Moody’s said.

That breach, or a loss of A3 or Prime-1 ratings, could force the SIV into enforcement, which would mean the vehicle has to be wound down, with assets being sold to repay debt.

Deloitte & Touche are acting as receivers for other SIVs that have hit trouble, including Cheyne Finance, Rhinebridge and Standard Chartered’s Whistlejacket. (Reporting by Maya Thatcher in London and Jonathan Gould, John O’Donnell and Philipp Halstrick in Frankfurt, editing by Will Waterman)