New word for 'f*** up' A Defeasance Event … up-letter/

I love these guys. They skirt around their own complicity so neatly . An Irish company is ( inevitably ) in the loop, seems AIB are down a few squids on this collapse does it not ???

Basically they have not got enough money to continue and do not want to admit that openly, so they get the lawyers on it :slight_smile:

I’m amazed no-one in the media appears to have spotted this. Nice one.

Ok… so what does it mean in €uros?

Or has that to be revealed as more dirty washing is presented to the national outdoor olympic laundry?

It hasn’t been revealed - some enterprising journo should pick up the phone.

defeasance means the fund lost 50% or more of its real cash, AIB in some way was an investor …througn this entity described HERE

AIB has therefore lost 50% of its investment unless I am very wrong . It may not be a big investment and may not be material to their overall profits .

On the other hand it may be huge and they may be crapping themselves.

If A Random walk asked what was ‘going on’ in his excellent Blog I am sure that a clarification statement would emanate fairly lively :slight_smile:

An event of defeasance doesn’t mean they have lost anything. It means the fund will start deleveraging and paying back debt in an orderly manner.

What that means is that if you are a creditor to the fund and you are due to be repaid in three months then the fund can slowly sell off its assets in order to pay you back. If you are due to be paid in three years, likewise. (Note the implicit time-subordination there - lovely, innit?)

Defeasance != default.


I don’t think anyone has suggested that (god forbid should their lawyers come after us) but there’s certainly going to be a significant loss involved. Particularly if the rest of the market knows they are in trouble.

To be honest, the topic suggests otherwise - equating a defeasance event with a fuck up.

A defeasance event is inserted into the documentation in order to protect investors. A fire alarm has gone off and people are exiting the building, no one has done a human torch on it.


OK, I suppose I’ve been looking at some other sources which suggest a loss is all but guaranteed. Particularly the original letter which talked about the “major capital loss test” triggering the defeasance plus this bloomberg article … SOSzIBcg0&

I also can’t see whether AIB were acting as a fund manager or as an investor.

Just talking through my proverbial here, but knowing the way IFSC funds are structured, I would suggest that this was a joint venture Fund owned by AIB/BNY. BNY brought the custody resource and expertise, AIB brough tthe local admin. accounting and governance.

The management was conducted by Cheyne, who collected a fee from the Fund. A google shows Cheyne are a possie who parachuted from Morgan Stanley.

What would AIB have to loose?

The would have some capital tied up in the business which could be lost, but not necessarily be unit holders in the fund.

They would loose the business of managing the Fund, which might be a nice little earner, but small in context of total operations (5 bps on assets under managment?)

Anyone who knows more about the local Funds industry feel free to tell me I’m talking crap.

To be very honest, I have no idea if a capital loss is guaranteed or not but I’m pretty sure that whoever wrote that doesn’t either. All we know is that one of the rating agencies’ covenants has been breached and that is causing the SIV to be wound down.

The utter drivel that journos are writing about structured finance these days is… well I was going to say remarkable, but I suppose it isn’t. Sensationalism sells as well in finance as in any other area.


FT alpha pulled this article yesterday . This is where I got the 50% figure from. It may of course be inaccurate which explains the pull.

So there, I still feel AIB may wish to answer a question or two.

Leverage debt managers have 10x and 15x products that would easily allow the types of mark to market losses reported here.

I say this is feasable.

However, this is not AIBs loss. It is the Fund’s (unit holders’) loss. Whether AIB had capital invested is another story. It is possible they helped seeding.

Ah, AIB are the custodians. Nothing to see here, move along.

Sure (I have no idea if AIB have equity involved or if they just purchased CP or an MTN issue - haven’t been paying attention to AIB’s involvement in particular).

I think the FT Alphaville article is a little misleading when they say the covenant breach wasn’t caused by a liquidity issue. An asset can fall in value for fundamental reasons (impairment in the pool underlying it) or for technical reasons (a dearth of buyers) and without knowing exactly what Cheyne had purchased you can’t say. But while 99% of ABS assets are probably fine (fundamentally) the liquidity issues are removing bids from the market and causing mark-to-market capital losses. The capital loss test doesn’t differentiate between these two situations (rightly so, as it would hardly provide protection otherwise).

The capital loss tests do force SIVs to unwind (sell) in a falling market, however, so I doubt anyone is getting out with equity intact. The debt investors will have to wait and see.