Structured investment vehicle
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A structured investment vehicle (SIV) is an evergreen credit arbitrage fund, similar to a CDO or Conduit. They are usually from around $1bn to $30bn in size and invest in a range of asset backed securities, as well as some financial corporate bonds.
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[edit] Structure
The basic structure has two tiers of liabilities, junior and senior, with a leverage ratio in the region 10 to 15 times. The senior debt is invariably rated AAA/Aaa/AAA and A-1+/P-1/F1 (usually two rating agencies are chosen), while the junior debt may or may not be rated. When it is rated it is usually in the BBB area. The senior debt is a pari passu combination of medium term note (MTN) issuance and commercial paper (CP) issuance. The junior debt is traditionally puttable rolling 10 year bonds, however shorter maturities and bullet notes are becoming more common.
SIVs are floating-floating spread arbitrage vehicles, the profit being the difference between the spread over Libor on the asset bonds, and the (often negative) spread on the funding (senior liabilities). To the extent that the SIV invests in fixed assets, hedges are put in place to protect from interest rate risk.
In order to support the high senior rating, SIVs are also obliged to obtain liquidity facilities from banks to partially cover some of the senior issuance. This helps to protect the investors from the risks of market disruption amongst other things.
[edit] Notable SIV managers
Most SIVs are run or sponsored by banks, however a number are managed independently.
[edit] Bank Sponsors
- HSH Nordbank manages Carrera Capital Finance
- Bank of Montreal manages Parkland Finance and Links Finance
- Citigroup manage a number of SIVs including Zela Finance, Beta Finance, Sedna Finance and Dorado Funding
- Dresdner Kleinwort manages K2 Corporation
- HSBC manages Cullinan Finance
- Societe Generale manages Premier Asset Collateralized Entity (PACE)
- Standard Chartered Bank manages Whistlejacket Capital and White Pine Corp
- WestLB manages Harrier Finance
[edit] Independents
- Brightwater Capital Management manages Kestrel Funding
- Cheyne Capital Management manages Cheyne Finance
- Eiger Capital Limited manages Orion Finance
- Stanfield Global Strategies manages Stanfield Victoria
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