Solent Capital Partners LLP, the U.K. manager of $8.8 billion in hedge funds, may be forced to sell assets in a unit that buys mortgage-backed securities after lenders refused to provide short-term funding.
Solent's Mainsail II Ltd. fund joins issuers including Countrywide Financial Corp., the biggest U.S. mortgage lender, and Toronto-based Coventree Inc. that have been denied financing as rising defaults on subprime loans erode investor confidence in securities backed by mortgages. Yields on the debt soared on Aug. 17 by the most since the Sept. 11, 2001, attacks.
Mainsail II is drawing on emergency bank loans after failing to sell asset-backed commercial paper, or short-term IOUs, the fund said today in a statement. Mainsail II, which was set up by London-based Solent last year, issues the debt to invest in longer-dated assets such as mortgage-backed bonds.
Companies are finding it ``difficult to get the cheap funding they're used to,'' said Priya Shah, a structured credit analyst at Dresdner Kleinwort in London. ``We will see more of these.''
About $5.6 billion of asset-backed commercial paper was sold in Europe today of the $6 billion that came due, according to Saher Bin Jung, a trader of the securities at Commerzbank AG in London. Mainsail II had $1.3 billion of short-term debt at the end of March, according to Moody's Investors Service.
Banks typically promise to provide emergency funds in case commercial-paper investors refuse financing. Barclays Plc had committed to provide $556 million of emergency funding to Mainsail II, according to Moody's.
Landesbank Sachsen Girozentrale in Liepzig, Germany said Aug. 17 it got 17.3 billion euros ($23.3 billion) in credit from a group of German state-owned savings banks to repay debt sold by its Ormond Quay ABCP vehicle. European Union regulators will examine whether the credit granted by the banks included state aid, a commission spokeswoman said today.
IKB Deutsche Industriebank in Dusseldorf got a rescue package Aug. 2 from government-owned lenders.
The U.S. Federal Reserve cut the interest rate it charges banks by 0.5 percentage point on Aug. 17 after Countrywide, Australia's Rams Home Loans Group Ltd. and Coventree were forced to seek emergency funds.
``There's a lot of uncertainty and commercial-paper buyers want to step back and find out what's actually in the conduits before deciding to commit themselves,'' Shah said.
Mainsail II is run by Solent Capital (Jersey) Ltd., Solent's collateralized debt obligation unit. CDOs are securities that package bonds and loans, using their income to repay investors.
Solent spokeswoman Sally Moore in London declined to comment.
The company was founded in 2003 by Jonathan Laredo, a former managing director at JPMorgan Chase & Co.; Geoff Smailes, who was previously at Credit Suisse Group; and Tim Gledhill from Merrill Lynch & Co.