Victoria Finance’s SIV Restructuring, Mainly Through Vertical Slices

February 5, 2009

Lawyers in the Seward & Kissel Global Bank and Institutional Finance & Restructuring Practice Group are working closely with the collateral agent and investors as well as other transaction parties in connection with the restructuring of the Victoria Finance SIV.

The following article was first published by the DEBTWIRE on January 8, 2009 and is reproduced herein with their permission.


Victoria Finance SIV Restructures, Mainly Through Vertical Slices;
Interpleader Affecting Small Portion of Funds, Still Not Resolved
by Danielle Reed

Victoria Finance SIV creditors have successfully restructured the SIV, avoiding a fire sale of assets, according to a law firm involved in the restructuring.

Victoria Finance entered enforcement mode almost a year ago, in mid-January 2008. At that time, its senior creditors, mainly U.S. and Euro commercial paper and medium term note holders as well as liquidity providers and hedge counterparties, suspended an asset liquidation pending a restructuring, according to law firm Seward & Kissel. The restructuring for all but a small portion of obligations, which remain under dispute, is now complete, according to Seward & Kissel. The approximate notional amount outstanding under Victoria SIV is just over USD 6.3bn, according to the firm.

The solution for most creditors was to elect to be allocated a “vertical slice” of the assets in Victoria’s portfolio (and a corresponding pro rata share of cash), based on each creditor’s proportionate share, according to Seward & Kissel. After the vertical slices were allocated, these creditors could then opt to essentially exchange all or some of the notes for the physical assets in a foreclosure sale. Another option some creditors chose was to sell their vertical slices to a newly created special purpose vehicle, with the option to resecuritize or repackage the assets or sell them at a later date.

But the main point of either option, said Greg Cioffi, a partner in Seward & Kissel’s Global Restructuring and Asset Securitization Group, was to enable creditors to “keep control of the slice” and to maximize returns either by selling later or holding to maturity. A very small percentage of creditors did opt to cash out under the restructuring, Cioffi said. According to Seward & Kissel’s statement, these creditors were allocated a cash amount “based upon an agreed-upon valuation methodology that approximated current asset values.”

There are certain of Victoria Finance’s obligations that remain in dispute after the restructuring, according to Seward & Kissel. The amount in dispute is approximately USD 200m, according to Cioffi. The origin of the dispute has to do with differing interpretations about how to apply the SIV’s available cash to the senior obligations between the time an enforcement event was declared and the date the enforcement manager determined a mandatory redemption was required, according to Robert Frier, a director at Deutsche Bank Trust Company Americas, Trustee for Victoria Finance.

That period of time was less than a month, Cioffi said. However, because many notes came due during that period, the amount was substantial enough to engender disputes. Trustee Deutsche Bank Trust Company Americas filed an interpleader suit earlier this year in New York State Supreme Court. The dispute could be resolved during the first half of 2009, Cioffi said. In any event, because the disputed amount is reserved, the rest of the obligations can be allocated as per the restructuring, he said.

Many of the solutions used in the Victoria Finance restructuring could prove useful in restructuring other SIVs as well as other types of distressed structured vehicles, said Kal Das, practice head of Seward & Kissel’s Global Bank and Institutional Finance and Restructuring Group.