Lovells

Lovells, acting for the receivers of SIV Portfolio plc (in receivership) (formerly known as Cheyne Finance plc), a $7bn investment vehicle formerly run by London-based hedge fund Cheyne Capital, has successfully completed the Goldman Sachs-led restructuring of SIV Portfolio plc (in receivership).  

The settlement of the sale of the assets of SIV Portfolio plc (in receivership) was confirmed on 23 July and brings to an end the process which began in mid-June when Neville Kahn, Nicholas Edwards and Nicholas Dargan (the Receivers), partners at Deloitte & Touche LLP  and the receivers of SIV Portfolio plc (in receivership) (formerly known as Cheyne Finance plc) (the SIV vehicle) announced that the SIV vehicle had entered into a restructuring agreement and portfolio sale agreement with Goldman Sachs International (GSI).  Under the restructuring arrangements, the SIV vehicle agreed to sell a portion of the portfolio of debt securities held by it to GSI and the remaining debt securities to market participants pursuant to an auction process.  On 17 July 2008 an announcement was made that the Highest Bid Price had been accepted and that the proceeds from the sale of the entire Investment Portfolio amounted to U.S. $2,572,590,930.  

The completion of the restructuring represents the final step in the groundbreaking deal, leading some commentators to claim that banks and their advisors are starting to create solutions to the challenges posed by SIVs.  It is hoped that this solution will confront and resolve some of the problems around illiquidity which are at the heart of the global credit crunch.  

Robin Spencer, Partner and Head of Business Restructuring and Insolvency at Lovells, said:  

"The completion of this high profile transaction is good news for everyone in the market.  Through the process of this work a robust template has been created for other SIVs to follow where appropriate. The financial restructuring, capital markets and corporate trustee practices here at Lovells should all be proud at having once again demonstrated our unparalleled legal expertise in the SIV arena."  

James Doyle, a Partner in the Capital Markets practice at Lovells, said:  

"This was a very complex deal with a unique structure. A key objective in the restructuring was to provide the relevant creditors with optionality whilst operating within the confines of the existing transaction documentation (which was not designed to implement this type of restructuring).  The diverse group of creditors also led to added challenges in developing this optionality given their differing requirements.   Under the resulting structure, GSI agreed to arrange for senior creditors to be able to invest their cash dividend resulting from the sale of the assets of the SIV vehicle in either (i) pass-through notes issued by a NewCo and which are collateralised by those assets sold by the SIV vehicle to GSI or (ii) zero-coupon notes issued by The Goldman Sachs Group, Inc.  Those senior creditors which elected to purchase the pass-through notes issued by the NewCo were thus able to maintain their exposure to the assets previously owned by the SIV vehicle.”  

The SIV Portfolio / Cheyne team at Lovells was led by Robin Spencer (Partner and Head of Business Restructuring and Insolvency (BRI)) and James Doyle (Partner, Capital Markets) assisted by Jonathan Malim (Senior Associate, Capital Markets) and Paul Apathy (Senior Associate, BRI).  Andrew Carey (partner and head of the London Capital Markets practice) and Kit Johnson (of counsel and head of the firm's corporate trustee practice) led the team advising The Bank of New York Mellon (BNYM) as security trustee for SIV Portfolio plc (in receivership).  Regulatory advice was led by Dominic Hill (Partner).  The U.S. law team was led by Robert Ripin (Partner, Capital Markets) and Adam Solowsky (Of Counsel, Capital Markets) and litigation by Hugh Lyons (Partner) and John Tillman (Senior Associate).  Clifford Chance partner David Steinberg has been advising GSI on the transaction.  

Lovells is also representing the partners of Deloitte & Touche LLP as receivers of Rhinebridge Plc (in receivership) (Nicholas Dargan, Neville Kahn, and Debbie Young).  We are also representing BNYM as security trustees of Mainsail II Limited (in receivership) and Golden Key Limited (in receivership).    Through these mandates Lovells has demonstrated a market-leading position in complex financial restructuring and developed a unique expertise in this field.  

1. A SIV is an investment company which seeks to generate investment returns through a yield arbitrage between on the one hand, investments in highly-rated medium- and long-term fixed income instruments (including residential mortgage-backed securities (RMBS) and collateralised debt obligations (CDOs) and on the other hand, the funding of such investment by the issuance of lower cost short-term debt instruments in the form of asset-backed commercial paper (ABCP) and asset-backed medium term notes (MTNs).  Typically, capitalisation of a SIV includes subordinated debt (Capital Notes) which take the first loss position on the underlying investment portfolio. Several SIVs have seen the market value of their underlying investments deteriorate under hostile market conditions, with RMBS and CDO assets particularly affected. 
2. In addition to the Cheyne team mentioned above, the Lovells SIV team includes David Hudd (Partner, Global Head of Finance and co-leader, with Andrew Carey, of the Rhinebridge Capital Markets team), Natasha Williams (Senior Associate, Capital Markets), Jennifer O'Connell (Associate, Capital Markets) and Caroline Rasaiah (Associate, BRI).  Special mention is deserved by Zip Jila (Trainee, Capital Markets and, later, BRI) who has been involved from the outset on all SIV transactions.