Solent suffers from 'credit crunch'

August 2007

Solent Capital, a UK hedge fund and specialist credit investor, has warned that it may have to sell off some assets in one of its funds, because it has been refused credit by its banks.

This makes Solent the first London hedge fund to openly admit to being caught up in the aftermath of the US sub-prime crisis - the specific fund, MainSail II, manages $8.8 billion, mainly in asset-backed securities, including loans granted to Americans with poor credit histories.

Solent made its name devising and managing complex credit instruments such as CDOs, which are made up of millions of individual loans, bound together and then sold in portions to investors - when people began defaulting on loans as part of the sub-prime crisis, CDOs collapsed.

In a statement, the company said: "As a result of such adverse liquidity and market conditions, a market value coverage test wind down event has occurred.
"For so long as such wind down event is continuing, the company must comply with specified wind down management procedures.

"This may result in the forced sale of investments which may materially impact principal and interest repayments on notes issued by the company."
Solent may be forced to sell mortgage-backed securities and other assets, after taking out emergency bank loans following being turned down by commercial lenders.

Many analysts have been predicting bad times ahead for banks, hedge funds, mortgage lenders and companies in related sectors, as a result of the credit crunch - yesterday, it emerged that Deutsche Bank has given up on some of its credit investment strategies after a €134 billion loss last month.

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