Goldman Agrees on $7 Billion Cheyne SIV Restructuring

Goldman Sachs Group Inc. and Deloitte & Touche LLP agreed to auction some assets of a $7 billion structured investment vehicle set up by hedge fund Cheyne Capital Management (UK) LLP, in a model that may be used to wind down similar credit funds.

Deloitte, the accounting firm that is acting as receiver, will sell a portion of the assets of SIV Portfolio Plc, previously known as Cheyne Finance Plc, said Neville Kahn, a receiver at Deloitte in London. The auction will set the price at which any unsold debt would be transferred to a new company set up by Goldman, which will then issue notes backed by the assets, Kahn said.

``It's expected that other SIV restructurings will follow this model,'' Kahn said in an interview today.

Deloitte has been trying to reorganize Cheyne Finance since September after the SIV was shut out of the commercial paper market and forced to sell assets at a loss. SIVs with at least $31 billion of debt defaulted in the past 11 months, according to S&P.

SIVs, which use short-term and medium-term borrowings to buy high-yielding securities, owned more than by more $400 billion of assets at their peak last year. Investors shunned their debt amid concern that they held mortgage-linked assets that were losing value and they would be forced into fire sales because of financing strategies.

The threat of forced sales further roiling credit markets prompted U.S. Treasury Secretary Henry Paulson to start talks on setting up an $80 billion bailout fund last year. Citigroup Inc., Bank of America Corp. and JPMorgan Chase & Co. abandoned the so-called SuperSIV after banks began rescuing their own funds, led by London-based HSBC Holdings Plc.

Asset Auction

Almost half of Cheyne Finance's underlying assets were linked to U.S. residential mortgage backed securities, Moody's Investors Service said in an October 2007 report. Seven percent of the SIV's assets included collateralized debt obligations of asset-backed securities.

Deloitte's Kahn declined to comment on the SIV's assets.

Deloitte said in December that it agreed to initial terms for selling the Cheyne SIV's assets to Goldman Sachs as part of a restructuring. The auction will take place in the two weeks to July 18, Kahn said.

Deloitte is also the receiver to Golden Key, a $1.5 billion defaulted SIV set up by Geneva-based hedge fund manager Avendis Group, and is overseeing the wind-down of Whistlejacket Capital Ltd., a $7 billion SIV set up by London-based bank Standard Chartered Plc, and IKB Deutsche Industriebank AG's Rhinebridge Plc. Deloitte reached agreement with Goldman Sachs to restructure Golden Key in May.

``We are pleased that Goldman and Deloittes now appear to have got this deal done,'' London-based Cheyne said in an e- mailed statement earlier today.