Barclays Capital rescues fund with £800m
Barclays Capital was today forced to put up $1.6bn (£800m) to rescue an ailing debt fund it helped set up as the crisis in the credit market claimed new victims.
Barclays made available some $1.6bn of liquidity to Cairn High Grade Funding I, a vehicle controlled by Cairn Capital, a City-based structured finance firm with $9bn under management.
The Cairn fund was set up by Barclays as a so-called SIV-lite, which is a type of specialist structured investment vehicle pioneered by the British banking group.
SIVs rely on the short-term debt market, which has all but dried up in recent weeks because of the credit crunch caused by the collapse of the United States subprime mortgage market. Barclays Capital is obliged to rescue Cairn based on the terms of the SIV it set up.
The refinancing came as Cairn teetered on the brink of collapse after recently drawing on $442m in back-up liquidity lines from Barclays and Danske Bank.
What is more, Standard & Poor's and Moody's, the ratings agencies, last week began reviewing the fund's credit rating.
Paul Campbell, chief executive of Cairn, said: 'Without the constructive engagement and intense focus of our investors and BarCap it would not have been possible to achieve this successful restructuring.'
Barclays stressed that it has no cash exposure to the bailout as the provision of $1.6bn in liquidity had been hedged. It is understood that Cairn and its investors paid the hedging fees 'so we have absolutely zero exposure', a Barclays source said.
The entire SIV market is worth some $5bn with Barclays holding a maximum exposure of about £75m. according to sources.
The bailout was a surprising high note to end a bad week for Barclays, which earlier hadto tap the Bank of England's standing lending facility for £1.6bn, citing a technical breakdown in the UK clearing system.
The shares closed up 20p at 617½p.
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