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Moody's Investors adjusts ratings on Citigroup's US$64.9 billion in SIV debt

Moody's Investors Service said that the US$64.9 billion in debts sold by Citigroup Inc's structured investment vehicles (SIV) was cut or placed on review for a downgrade as part of a review of $130 billion of SIV debt.

The ratings company surveyed 20 SIVs since Nov. 7 and expanded its review after noticing "significant additional deterioration" in asset values, it said in a statement on Friday.

Links Finance Corp, an SIV sponsored by the Bank of Montreal with US$19.1 billion of debt, may have its ratings cut, Moody's said.

SIVs, which sell short-term debt to buy longer-term, higher-yielding assets, were shut out of the short-term market as losses on subprime mortgage securities prompted investors to retreat from all but the safest of securities. Unable to finance themselves, three SIVs have defaulted and others are being bailed out by their sponsors. The world's 30 SIVs have more than US$300 billion in assets.

"In recent weeks, Moody's has observed material declines in market value across most asset classes in SIV portfolios," the ratings company said in the statement.

Moody's cut US$14 billion in debt in all, mostly capital notes that rank below commercial paper and medium-term notes and are usually the first to absorb losses, Henry Tabe, managing director in charge of structured finance, said in a telephone interview.

The ratings company placed US$105 billion of debt on review for a downgrade and confirmed the ratings on US$11 billion, Tabe said.

SIV assets on average are 38 percent financial institution debt, 16 percent asset-backed securities and 12 percent collateralized debt obligations, Moody's said.

The downgrades are "a reflection of the continued deterioration in market value of SIV portfolios combined with the sector's inability to refinance maturing liabilities," Moody's said.

Net asset values have slumped to 55 percent from 102 percent in June, Moody's said, including the NAVs of the three defaulted SIVs.

Citigroup, the largest US bank by assets, provided US$7.6 billion in emergency financing to the seven SIVs it runs earlier this month after they were unable to repay maturing debt.

The New York-based bank created the first SIV in 1988 and is the largest manager.

The SIV's struggle for survival and the threat of having their assets dumped on the market prompted US Treasury Secretary Henry Paulson to broker talks with Citigroup, JPMorgan Chase & Co. and Bank of America Corp to form an US$80 billion fund to help bail them out.

HSBC Holdings PLC of London this week said it would take on US$45 billion in assets from the two SIVs it manages after they were unable to finance themselves. SIVs set up by Dusseldorf-based lender IKB Deutsche Industriebank AG and London-based Cheyne Capital Management Ltd defaulted last month after investors stopped buying their asset-backed commercial paper.

Citigroup said in a Nov. 5 regulatory filing that it "will not take actions that will require the company to consolidate the SIVs." The strategy "remains unchanged from the disclosures in the third quarter" filing, spokesman Jon Diat said on Friday in an e-mail statement.

"We continue to focus on liquidity and reducing leverage," Diat said.

Citigroup's SIV assets have dropped to US$66 billion from US$83 billion on Sept. 30, Diat said.

Centauri Corp, the largest SIV run by Citigroup with US$16.9 billion in debt, had its P1 commercial paper rating placed on review for downgrade as well as its AAA medium-term note program, Moody's said. Centauri's net asset value dropped to 60 percent from 85 percent since Sept. 5, Moody's said.
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