US subprime collapse hits Dublin-listed Cheyne fund

RECEIVERS have been appointed to a Dublin-listed investment fund hit by the collapse of the subprime mortgage market.

Cheyne Finance, a structured investment vehicle that used short-term borrowings secured against debts backed by US subprime mortgage market to purchased long-term investments, last week said it had to sell off some of its $6 billion (€4.4bn) in assets. The move followed a downgrade of the fund’s rating by credit agency Standard & Poor’s.

Cheyne Finance was forced to appoint the receiver under the terms of the company’s security trust deed “following the occurrence of an enforcement event” — the downgrading of its rating.

Cheyne yesterday said it called in Deloitte & Touche to handle the receivership.

Neville Khan of Deloitte said: “The receivers will familiarise themselves with the company’s assets and liabilities, consider the strategy being put in place following the occurrence of the enforcement event and monitor the management of the company’s assets.”

The difficulties at Cheyne follow on from the turmoil in the commercial paper market. Many of these investment vehicles are now unable to raise new financing because investors have been nervous of buying into the subprime market after it emerged that hundreds of thousands of American homeowners are struggling to repay their mortgages.

This has led some of the investors in these firms to demand repayment of their loans immediately causing liquidity problems for the funds.

The move to appoint receivers to Cheyne Finance comes weeks after it emerged that another Dublin-based fund, Ormond Quay, had caused the near-collapse of a bank owned by the German state of Saxony.

Ormond Quay, owned by Landesbank Sachsen, required a bailout of €17 billion from a group of German banks to prevent it going under.

Meanwhile, the High Court yesterday put finance firm Structured Credit Company into examinership on the basis that it still had a chance of surviving.

Ms Justice Mary Finlay Geoghegan said she was satisfied the company’s directors, who had petitioned for the appointment of an examiner, had produced evidence as to a reasonable prospect of the company, or at least part of it, surviving.

Michael Collins SC, who appeared for the company with Rossa Fanning, told the court that the majority of existing creditors were either supporting the petition for examinership or were adopting a neutral attitude.

Paul Gardiner SC, counsel for Japanese banking giant Nomura International, told the judge that the company, which had earlier succeeded in obtaining an order for the winding up of the company, was adopting a neutral attitude to yesterday’s application.

The petition for examinership was opposed by Morgan Stanley which, the court heard, was the largest creditor of the firm.