Goldman Sachs has nearly completed a long-awaited rescue of a $7 billion structured investment vehicle, sources said, just as it adjusts to the credit crunch by laying off hundreds of bankers.
The deal to restructure the SIV, formerly run by British hedge fund Cheyne Capital, comes as Wall Street's biggest investment bank is expected to report a 33 percent drop in second-quarter earnings on Tuesday, hurt by a fall in activity in key markets.
"We are delighted ... we are in a position to sign a restructuring agreement in respect of the Cheyne Finance portfolio today," said Neville Kahn, a receiver at Deloitte.
Other SIVs, including Golden Key, Whistlejacket and Rhinebridge, are expected to follow Cheyne's model, being restructured by Goldman , said Stephen Peppiatt, at Bingham McCutchen, a legal advisor to a Cheyne senior creditor.
"We thought that Cheyne would be restructured some time ago, it has taken longer, but now there is a template that others will follow," he said.
Under the restructuring, accountancy firm and Cheyne receivers Deloitte will price the assets in the market, Peppiatt said. They would sell a minority part of the portfolio through an auction, corresponding to the group of creditors who want cash, he said, which would put a price on the assets.
That would allow Deloitte to sell the rest of the assets to the rest of the creditors -- who have already agreed to reinvest that money in a newly established vehicle set up by Goldman Sachs -- which will hold the rest of the portfolio.
The structured investment vehicle or SIV formerly run by hedge fund Cheyne Capital collapsed last year as the credit crunch hurt the value of its investments in asset-backed securities and collateralised debt obligations (CDOs).
Deloitte & Touche -- which is acting as receiver of the SIV -- declined to comment on the deal, as did Goldman.
Job Cuts
Goldman Sachs laid off hundreds of investment bankers last week, people familiar with the situation and recruiters told Reuters on Monday, with one insider saying 25 percent of employees at the vice-president level were let go.
The cuts were seen as a reaction to slowing markets and a slump in merger activity in the wake of the credit crisis.
Yet finalisation of the restructuring deal, which was first announced in December, provides a glimmer of hope for the revival of the market in troubled mortgage assets that are at the core of the global credit crisis.
"The good news is that we are capable of valuing these assets and that we can move on from this phase to the next one," said Jeroen van den Broek, a credit strategist at ING.
In the deal, the new vehicle will issue some securities that the senior creditors will buy, giving Goldman Sachs the money to repay the assets that the vehicle bought from the receivers.
SIVs ran into trouble last August when liquidity in the credit markets dried up, preventing them from raising funds and also causing the value of their assets -- mainly bank debt and asset-backed securities -- to drop.
SIVs, held by banks, hedge funds or other institutions, issue a mixture of short-term debt and capital to buy longer-term assets, which pay more interest than the amount they pay on their notes.