LONDON, Nov 26 (Reuters) Europe's biggest bank HSBC Holdings Plc said on Monday it was restructuring its two structured investment vehicles (SIVs), Cullinan and Asscher, to support them in the face of continued funding difficulties.
HSBC said in a statement it would provide a combination of liquidity facilities and term funding which it expected to total billion by August 2008, and as a result would consolidate the two SIVs onto its balance sheet.
''We believe that HSBC's actions will set a benchmark and restore a degree of confidence to the SIV sector, while providing a specific solution to address the challenges faced by investors in Cullinan and Asscher,'' Stuart Gulliver, chief executive of HSBC's Corporate, Investment Banking and Markets division, said in a statement.
HSBC said the action would prevent the funding problems from forcing the sale of the two vehicles' assets -- mostly structured finance securities that remain highly rated.
Holders of existing income and mezzanine notes will be offered the chance to exchange them for notes from new vehicles backed by the liquidity facilities and term funding. Senior debt holders will be repaid as debt falls due and will have the opportunity to reinvest in commercial paper issued by the new vehicles.
SIVs issue a mixture of short-term debt and longer-term funding and invest the proceeds in long-term securities, mostly bank debt and asset-backed securities.
They have been hit by a double whammy as the value of their assets has fallen sharply due to contagion from the U.S.
subprime mortgage crisis, while their access to short-term funding has been severely limited as investors shun asset-backed commercial paper.
The sector is in ''wind-down'', with over 0 billion of assets sold by the end of October, Standard&Poor's said last week.
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