26th Nov 2007 10:00
HSBC Holdings PLC26 November 2007 HSBC PLANS TO RESTRUCTURE ITS TWO SIVS *** HSBC to provide a combination of liquidity facilities and term funding *** *** HSBC expects these liquidity facilities and term funding to total *** US$35 billion by August 2008 *** HSBC expects to have no material losses or capital requirements from *** these actions HSBC is taking decisive action to prevent the current funding constraints in theStructured Investment Vehicle (SIV) sector from forcing a liquidation of high-quality assets held by Cullinan Finance Limited and Asscher Finance Limited. In order to achieve this, HSBC will provide investors in Cullinan and Asscher,which are managed by HBSC Bank plc, with the option to exchange their existingIncome Notes and Mezzanine Notes for notes issued by one or more new vehicles.Each of these new vehicles will be funded either by commercial paper backed by a100% liquidity facility, or by term financing, both to be provided by HSBC.Current senior debt holders of Cullinan and Asscher will be repaid as their debtfalls due and will have the opportunity to reinvest in the commercial paperissued by the new vehicles. Since HSBC will facilitate senior funding through provision of 100% liquidityfacilities or through the purchase of term notes, HSBC expects rating agenciesto allow the new vehicles to operate without market value or net asset valuetriggers, which currently have the potential to restrict Cullinan and Asscher'sinvestment and operating flexibility. Income Note and Mezzanine Note investorswill continue to bear the risk of actual credit defaults in the assetportfolios, as originally intended when Cullinan and Asscher were established. Stuart Gulliver, chief executive of HSBC's Corporate, Investment Banking andMarkets division, said: "We believe that HSBC's actions will set a benchmark andrestore a degree of confidence to the SIV sector, while providing a specificsolution to address the challenges faced by investors in Cullinan and Asscher,the two SIVs managed by HSBC." The SIV sector has been under significant funding pressure since July 2007, asevidenced by the inability of most SIVs to fully roll over their senior fundingin the form of commercial paper or medium term notes. More recently, SIVs havecome under further pressure from a continued decline in the market value ofassets, which has put the vehicles at risk of being restricted in theiroperating flexibility. HSBC has been proactively addressing the challenges posed by current marketconditions. Both HSBC-managed SIVs are funded beyond year-end 2007, with Asscherfunded to April 2008. The credit quality of the assets owned by the two SIVsremains strong with an average asset rating of Aa1/AA+ and no downgrades of anyasset-backed securities or structured finance securities to date. However, HSBCbelieves there is not likely to be a near term resolution of the fundingproblems faced by the SIV sector. Following this announcement, HSBC will consolidate Cullinan and Asscher foraccounting purposes. This will result in approximately US$45 billion ofadditional assets and related funding being included on HSBC's consolidatedbalance sheet. As existing investors will continue to bear all economic riskfrom actual losses up to the full amount of their investment, HSBC expects nomaterial impact to its earnings. HSBC also expects limited impact on regulatorycapital requirements because of this first-loss protection. The actual amount of liquidity facilities and term funding is expected to besignificantly less than the US$45 billion of assets noted above. This is due toamortisation of assets and repayment of senior debt from current holdings ofcash and short-term investments. In total, HSBC expects to provide a combinationof liquidity facilities and term funding of up to US$35 billion. The liquidity facilities and term funding will be provided prospectively as existingcommercial paper and medium term notes issued by the two SIVs mature. This isexpected to be complete by August 2008. This is further expected to be absorbedwithout material impact through utilisation of HSBC's available liquidityresources. The offer to exchange existing Income Note and Mezzanine Note investments inCullinan and Asscher is expected to be made formally in late 2007 or early 2008. Note to editors: HSBC Holdings plcHSBC Holdings plc serves over 125 million customers worldwide through around10,000 offices in 83 countries and territories in Europe, the Asia-Pacificregion, the Americas, the Middle East and Africa. With assets of some US$2,150billion at 30 June 2007, HSBC is one of the world's largest banking andfinancial services organisations. HSBC is marketed worldwide as 'the world'slocal bank'. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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