Royal Bank of Scotland PLC has started talks to purchase the assets of British hedge fund manager Cheyne Finance PLC. A deal could allow senior lenders to recover more than US$6 billion (4.2 billion EUR) in debt.
The RBS plan involves creating an entity that will acquire Cheyne Finance's assets with capital from new and existing investors and sell down the portfolio over time, said the source close to the deal.
RBS, and the receiver, Deloitte & Touche, declined to comment. A representative for Houlihan Lokey Howard & Zukin, financial adviser to Deloitte & Touche, couldn't be reached for comment.
A deal would be an encouraging sign for other troubled structured investment vehicles, or SIVs, that are trying to refinance or restructure at a time when global banks are concerned about exposure to such investment pools and the effects forced asset sales may have on jittery credit markets
It would also indicate potential appetite from investment banks such as RBS looking to profit from picking up the pieces of failed SIVs, which are a type of investment pool that relies on short-term funding to finance longer-dated securities.
Roughly half of Cheyne Finance's assets are residential mortgage-backed securities, with the rest comprised of commercial mortgage-backed securities and collateralized debt obligations.
Cheyne Finance was set up in 2005 by Cheyne Capital Management, one of Europe's largest managers of hedge funds and structured credit portfolios, with US$12 billion (8.5 billion EUR) in capital.
Under the RBS-led transaction, the new investors would appoint a new manager for the special-purpose vehicle, the person familiar with the plan said - unlikely to be Cheyne Capital.
Cheyne Finance went into receivership on Sept. 5 after it sold assets and reduced the size of its portfolio to help repay maturing debt. On Wednesday, it stopped repaying its maturing debt after its receivers determined it was insolvent
RBS shares closed 1.7 percent lower Monday at 502 pence (US$10.30; 7.27 EUR) in London.