Cheyne Finance PLC, a British hedge fund manager, said Wednesday that losses in its investment portfolio have led it to draw down on all three of its liquidity facilities and that it is trying to restructure or extend its debt repayment obligations.
The company said it has sufficient funds to pay scheduled liabilities through November.
"We have been actively selling assets and reducing the size of the portfolio, and have raised sufficient cash to cover projected liabilities for the next few months," the company said in a statement.
Cheyne said it was starting a process by which it will sell assets to meet its liabilities as they come due.
The announcement came after Standard & Poor's said Tuesday that it was putting the ratings on some notes issued by Cheyne Finance PLC and Cheyne Finance LLC on CreditWatch with negative implications as investor demand for so-called commercial paper declined.
"Current pressure on market prices and the associated recent deterioration in the net asset value of this vehicle have reached a level where the ratings have come under pressure," S&P said in a statement.
Investors are shying away from commercial paper _ or debt that must be repaid after no more than 270 days _ because of concerns about banks' lending to subprime lenders, or people who have poor credit records.
Cheyne Finance is managed by Cheyne Capital Management Ltd. which has responsibility for purchasing assets, managing the portfolio, and overseeing various forms of debt.
Moody's Investors Service also said Wednesday it was placing some Cheyne Finance notes on review for possible downgrade because of the deterioration in the market value of Cheyne Finance's portfolio.
"Due to the current distressed market environment, Cheyne Finance has had to liquidate assets to repay maturing commercial paper," Moody's said, adding that its decision takes into account "the current stressful market conditions."
"While the underlying assets of Cheyne Finance remain highly rated, the unprecedented illiquidity in the market for mortgage-backed securities has created a high level of uncertainty around the valuation of the assets, which makes it difficult to assess the probability of the manager achieving certain prices."