Citigroup has Five Days or SIV Downgrade

Will Citigroup announce an intention to support the financing for its $ 64.9 billion in vehicles? If not, the Commercial paper and Medium term notes risk a downgrade. Moody's said last Friday:

In this latest review, Moody's employed its updated methodology as announced on September 5th. The methodology update reflects the unprecedented volatility in the market value of the securities held by SIVs. For each SIV, Moody's models expected loss using a stressed volatility for the distribution of market asset prices based primarily on declines observed since July 2007. With this stress, only those tranches of the ABCP and MTNs issued that can sustain an additional price decline of two times the decline observed in this period will retain Aaa/Prime-1 ratings.

The net assets for Citigroup's vehicles in percentage terms:

Beta: 62%
Centauri: 60%
Dorada: 52%
Five: 63%
Sedna 56%
Zela: 61%
Vetra: ? (not found or mentioned in Moody's report)

None of these Vehicles pass the Moody's test for AAA rating.

To pass for the rating, the Vehicle has to have equity left after subtracting 2 times the previous losses since July. So therefore, any SIV with a NAV of less than 67% will be downgraded. This looks to be about half of the SIV universe.

Citigroup, and others have already provided emergency funding to their SIV after they were unable to pay maturing debt. Citigroup has already spotted $7.6 billion. With a downgrade, it would be much more.

There are some options. However, Citigroup has said:

Citigroup said in a Nov. 5 regulatory filing that it ``will not take actions that will require the company to consolidate the SIVs.'' The strategy ``remains unchanged from the disclosures in the third quarter'' filing, spokesman Jon Diat said yesterday in an e-mail statement. ``We continue to focus on liquidity and reducing leverage,'' Diat said. Citigroup's SIV assets have dropped to $66 billion from $83 billion on Sept. 30, Diat said.

I'm psyched to see what happens.