Bloomberg reports that the net asset value of SIVs rated by Fitch continue to fall. It is important to understand that a fall in net asset value is NOT the same as a fall in value of the fund’s total assets (according to Fitch, they stand at 97.7% of the face amount). As an earlier research note from Fitch explained:
As the prices of the underlying assets of the SIV decline the NAV of the capital note reduces at a magnified level due to the 14 times leverage found on average within the SIV market. Hence, a 0.5% price drop on all assets across the portfolio would result in the NAV declining by 7%.
The week-to-week fall is modest (SIVs are required to report to Fitch weekly) but the trend is still in the wrong direction. Even a modest weekly erosion, if it continues, will make a not-good situation worse. And there is no reason to expect values to recover. In addition, per an earlier post, the most pronounced deterioration was in securities insured by monoline insurers.
The net asset value of structured investment vehicles, companies that borrow short term to buy higher yielding securities, has fallen to 69.7 percent as the credit slump erodes their holdings, Fitch Ratings reported.
The amount that would be left after selling SIV assets and repaying debt dropped from 71 percent in the past month, data compiled by Fitch show. SIV holdings of nonprime U.S. mortgages and debt guaranteed by so-called monoline insurers fell the most, Fitch said.
“The worst offenders have been monoline-wrapped bonds, as well as investment bank debt and commercial mortgage-backed securities,” said Patrick Clerkin, a senior director at Fitch Ratings in an interview.
SIVs have been forced to sell about $75 billion of investments since July as record U.S. home foreclosures caused investors to withdraw from asset-backed commercial paper….
The average market value of the assets held by SIVs fell to 97.7 percent from 97.8 percent, based on the SIVs Fitch rates, including three run by New York-based Citigroup.
Bonds guaranteed by monoline insurers fell to 94.6 percent from 95.8 percent on concern the companies may lose their top credit ratings because of losses on subprime mortgages rose.