The reaction to JPMorgan, Bank of America and Citi’s proposals to launch a super-SIV called M-LEC to solve the liquidity crisis in the ABCP sector has been an equal mix of enthusiasm and cynicism.
SIVs have been attempting to hold off having to sell assets in various ways, such as using repo instead of CP funding and vertical slice sales (the latter involve the SIV sponsor redeeming capital notes in exchange for the capital note holder buying a chunk of SIV assets). The insolvency of Cheyne Finance and news that the Rhinebridge SIV cannot meet its debt repayments show how conditions are deteriorating. Even if the Super-SIV provides some comfort to CP investors (and there is little evidence so far that its announcement has had this effect) it will take months to set up, during which large volumes of SIV assets may still need to be dumped. Lehman analysts calculate that there are $300 billion to $350 billion of senior SIV liabilities outstanding, most with a tenor of less than two years, and that $150 billion of these senior liabilities will mature in the next 12 months.
