March 18, 2008 / 4:32 PM / 12 years ago

Dresdner grants $1.5 bln credit line to K2 SIV

LONDON, March 18 (Reuters) - Germany’s Dresdner Bank, part of the Allianz (ALVG.DE) group, granted a $1.5 billion mezzanine credit facility to help support its K2 structured investment vehicle, K2 said on Tuesday.

Dresdner also created a backstop facility to purchase investments from K2 if the vehicle cannot get better prices on the open market. These prices will be sufficient to ensure that K2 can repay secured liabilities in full, it said in a statement. K2 said as a result it expected Standard & Poor’s and Moody’s Investors Service to affirm their ratings on K2. Moody’s had said on March 12 it might cut K2’s Aaa and Prime-1 ratings due to fears over drops in the value of the SIV’s assets.

The vehicle warned however that holders of capital notes were unlikely to receive any payments prior to the repayment in full of all secured debt.

SIVs issued a mixture of senior short- and medium-term debt and subordinated capital and invested the proceeds in asset-backed securities and bank debt.

They got caught out by a double whammy as their funding dried up and the value of their assets fell sharply due to the subprime mortgage crisis.

That led to swingeing downgrades for some SIV debt issues and caused a number — including IKB’s IKBG.DE Rhinebridge and Standard Chartered’s (STAN.L) Whistlejacket — to enter receivership. Banks have been racing to put in place support for the SIVs they have created.

Many analysts say that the SIV business model is now permanently broken as a result. (Reporting by Richard Barley; Editing by David Holmes)

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