MBIA Collapses its Hudson Thames SIV, Takes Writedown
MBIA Inc., the largest bond insurer, is winding down its structured investment vehicle after failing to find buyers for the SIV’s short-term debt since August, Chief Financial Officer Chuck Chaplin said.
MBIA has shrunk its Hudson Thames Capital SIV to about $400 million from $2 billion through asset sales to bondholders, Chaplin said. The Armonk, New York-based company has taken an “impairment” on its own $15.8 million equity stake, Chaplin told a conference hosted by Bank of America Corp. in New York today.
SIVs, which borrow short term debt to buy higher yielding assets, are collapsing as contagion from U.S. subprime mortgage defaults drives investors away from asset-backed debt. HSBC Holdings Plc yesterday said it would bail out two SIVs by providing up to $35 billion of financing to avoid a fire sale of their assets.
The actions by MBIA and London-based HSBC signal that fewer SIV managers are prepared to wait for a possible rescue by the $80 billion “SuperSIV” fund being put together by Bank of America, Citigroup Inc. and JPMorgan Chase & Co.
Most banks and asset managers that operate SIVs are working on plans to restructure the companies and don’t expect the business model to survive, Moody’s Investors Service analysts said earlier this month. The New York-based ratings company said today that HSBC’s SIV restructuring doesn’t affect the bank’s credit ratings.
MBIA asked holders of the lowest ranking bonds of Hudson Thames, known as capital notes, to buy a share of the SIV’s bank bonds, asset-backed securities and other holdings in proportion to the amount of debt they own.
Vertical Slice
The so-called “vertical slice” deals enable SIVs to raise cash while bondholders avoid the risk of their investment being wiped out in a fire sale, Fitch said in a report this month.
Fitch said a “range” of the $107 billion of SIVs it rates have carried out the transactions.
SIVs lost as much as 30 percent of their net asset value because of the fallout from record mortgage foreclosures that Deutsche Bank AG analysts estimate may cause $400 billion in credit-market losses. SIV assets have shrunk by at least $75 billion since July to $320 billion, according to Moody’s.
Standard Chartered Plc in London is looking at alternatives to finance its SIV, Whistlejacket Capital Ltd., and isn’t involved in discussions with the SuperSIV, spokesman Tim Baxter in London said in an interview today.
MBIA Collapses its Hudson Thames SIV, Takes Writedown
By Christine Richard and Neil Unmack | Bloomberg