This story on Citi’s further SIV woes has appeared on Bloomberg; we’ll update it when the Wall Street Journal and other financial news sources weigh in.
Citi had roughly $80 billion of SIVs outstanding, but a MarketWatch story that looked to be a a PR plant, put the emphasis not on the rating agency actions, but on the fact that Cit has further reduced the amount of SIVs assets it has outstanding, from $83 billion to $66 billion. Thus the downgrades and reviews of $65 billion of debt involve effectively all of Citi’s’ SIV financing (the $1 billion unaccounted for may represent the lone SIV not on the watch list, Vetra).
The downgrades did not involve primarily subordinated debt, which is either capital notes or medium term notes, not commercial paper. However, the commercial paper for several Citi SIVs has been put on review. The Bloomberg article also lists the rating actions on the non-Citi SIVs
It seems, as we foretold, that the SIV rescue plan, which was about assisting Citi and then anyone else who cared to come along for the ride, is too little, too late (assuming that it ever sees the light of day).
From Bloomberg:
Moody’s Investors Service said $64.9 billion of debt sold by Citigroup Inc.’s structured investment vehicles was cut or placed on review for a downgrade as part of a review of $130 billion of SIV debt…
“In recent weeks, Moody’s has observed material declines in market value across most asset classes in SIV portfolios,” the ratings company said in the statement.
Moody’s cut $14 billion in debt in all, mostly capital notes that rank below commercial paper and medium-term notes and are usually the first to absorb losses, Henry Tabe, managing director in charge of structured finance, said in a telephone interview. The ratings company placed $105 billion of debt on review for a downgrade and confirmed the ratings on $11 billion, Tabe said.
SIV assets on average are 38 percent financial institution debt, 16 percent asset-backed securities and 12 percent collateralized debt obligations, Moody’s said.
The downgrades are “a reflection of the continued deterioration in market value of SIV portfolios combined with the sector’s inability to refinance maturing liabilities,” Moody’s said. Net asset values have slumped to 55 percent from 102 percent in June, Moody’s said, including the NAVs of the three defaulted SIVs….
Citigroup said in a Nov. 5 regulatory filing that it “will not take actions that will require the company to consolidate the SIVs.” The strategy “remains unchanged from the disclosures in the third quarter” filing, spokesman Jon Diat said today in an e-mail statement. “We continue to focus on liquidity and reducing leverage,” Diat said. Citigroup’s SIV assets have dropped to $66 billion from $83 billion on Sept. 30, Diat said.
Centauri Corp., the largest SIV run by Citigroup with $16.9 billion of debt, had its P1 commercial paper rating placed on review for downgrade as well as its AAA medium-term note program, Moody’s said. Centauri’s net asset value dropped to 60 percent from 85 percent since Sept. 5, Moody’s said.
Beta Finance Corp., the second-largest Citigroup SIV with $16 billion of debt, had its senior debt ratings placed on review for downgrade after its net asset value declined to 60 percent from 87 percent, Moody’s said.
Four other Citigroup SIVs, Sedna Finance Corp., with $10.7 billion of debt, Five Finance Corp., with $10.3 billion, Dorada Corp. with $8.5 billion, and Zela Finance Corp., with $2.5 billion, had their P1 commercial paper rating and AAA medium-term note programs placed on review, Moody’s said.
Sedna’s net asset value dropped to 56 percent, Five’s declined to 63 percent, Dorada dropped to 62 percent and Zela’s fell to 61 percent. A seventh Citigroup SIV, Vetra Finance Corp., wasn’t part of the review.
Dorada’s capital note program was reduced to Caa3 from Baa1.
The biggest SIV out there is Sigma. Gordian Knot, the independent manager, does not like to call Sigma a SIV but it is a SIV. Sigma is $60 billion. You have to wonder why Moody’s has not even commented on Sigma? I think everyone knows that Sigma liquidating would be the worst thing that could happen to the SIVs. Sigma does not have a bank to bail it out and Gordian Knot does not have many friends. Sigma is widely held among the big MM funds.