RBS to acquire Cheyne Finance

by Gill Montia

Story link: RBS to acquire Cheyne Finance

Royal Bank of Scotland (RBS) is reported to be in negotiations to buy the investment portfolio of Cheyne Finance, the structured investment vehicle owned by Cheyne Capital, the UK hedge fund manager.

Cheyne Finance recently breached insolvency tests and last week became the first fund of its kind to stop making payments to investors holding its commercial paper.

The decision by the High Court to allow the payments to stop has been instrumental in preparing for a sale because it has allowed administrators to reach an agreement with all Cheyne’s debt-holders.

Cheyne is like other SIVs in that its securities are backed by mortgages or collateralised debt obligations.

Both types of security have been affected by the problems of the US sub-prime mortgage market and the global credit crisis.

Once the quality of an SIVs’ assets are in doubt investors can refused to roll-over the short-term debt upon which it is dependent.

The move by RBS will encourage other troubled SIVs that are trying to refinance or restructure in the turbulence of today’s credit markets.

It could also indicate that investment banks such as RBS are looking to profit from picking up the pieces of failed SIVs.