Goldman Agrees on $7 Billion Cheyne SIV Restructuring (Update3)

June 17 (Bloomberg) -- Goldman Sachs Group Inc. andDeloitte & Touche LLP will sell some assets of a $7 billionstructured investment vehicle set up by hedge fund CheyneCapital Management (UK) LLP, in a model that may be used to winddown similar credit funds. The auction will determine the price at which the remainingassets held by SIV Portfolio Plc, previously known as CheyneFinance Plc, will be transferred to a company set up byGoldman, said Neville Kahn, a partner at Deloitte in London.The auction will take place during the first three weeks ofJuly, according to Kahn, whose firm is acting as the receiverfor the SIV. SIVs, which use short-term to buy higher-yieldingsecurities, owned more than $400 billion of assets at their peaklast year. The market collapsed as investors shunned SIV debt onconcern that the funds held mortgage-linked assets that werelosing value and they would be forced into fire sales. ``Goldman appears to have come close to solving the SIVpuzzle by auctioning off the assets belonging to Cheyne's SIV,which is likely to provide a template for other defaultedSIVs,'' said Chris Greener, an analyst at Societe Generale SA inLondon. Deloitte has been trying to reorganize Cheyne Finance sinceSeptember after the SIV was shut out of the commercial papermarket and forced to sell assets at a loss. Cheyne Finance hadalmost half of its assets in securities linked to U.S.residential mortgages and 7 percent in collateralized debtobligations made up of asset-backed securities, according to areport by Moody's Investors Service in October. Forced Sales Deloitte said in December that it had agreed to initialterms for selling the Cheyne SIV's assets to Goldman as part ofa restructuring. Proceeds from the asset sale will be distributed to theSIV's senior bondholders first, Deloitte said in an e-mailedstatement. There is unlikely to be enough cash to cover any payments to holders of subordinated debt including capitalnotes, according to the statement. ``We are pleased that Goldman and Deloittes now appear tohave got this deal done,'' London-based Cheyne said in an e-mailed statement earlier today. Deloitte is also the receiver to Golden Key, a $1.5 billiondefaulted SIV set up by Geneva-based hedge-fund manager AvendisGroup, and is overseeing the winding down of WhistlejacketCapital Ltd., a $7 billion SIV set up by London-based StandardChartered Plc, and IKB Deutsche Industriebank AG's RhinebridgePlc. Deloitte reached agreement with Goldman to restructureGolden Key in May. SuperSIV ``It's expected that other SIV restructurings will followthis model,'' Kahn said in an interview today. SIVs were designed to offer investors higher returns on top-rated securities than they could get on their own by lendingat benchmark rates. The vehicles issued commercial paper, ordebt due in nine months or less, and used the proceeds to buy longer-term assets such as bonds sold by banks and securitiesbacked by mortgages. The first SIV, Alpha Finance Corp., was created byCitigroup Inc. in the late 1980s. The threat of SIVs collapsing last year and further roilingcredit markets prompted U.S. Treasury Secretary Henry Paulson tostart talks on setting up an $80 billion bailout fund.Citigroup, Bank of America Corp. and JPMorgan Chase & Co.abandoned the so-called SuperSIV after banks began rescuingtheir own funds, led by London-based HSBC Holdings Plc. Citigroup, the largest manager of SIVs, rescued its sevenfunds in December by taking on their $49 billion of assets. HSBC bailed out its two SIVs by assuming $45 billion oftheir assets. Dresdner Bank AG, Germany's third-largest lender,supported its $18.8 billion K2 SIV in February. SIVs with at least $31 billion of debt defaulted in thepast 11 months, according to Standard & Poor's.