Barclays Capital will provide rescue financing to a $1.6 billion debt vehicle that it had structured for hedge fund Cairn Capital that could not raise short-term funding due to the US subprime mortgage crisis.
The two firms said today they had restructured the Cairn High Grade Funding I (CHGF) fund - a so-called SIV-lite.
A source said Barclays would provide $1.6 billion (€1.17 billion) in fresh funding to pay off all maturing short-term asset-backed commercial paper (ABCP). Barclays said it had fully hedged its credit exposure to the vehicle.
The news comes at the end of a turbulent week for Barclays, which has seen a rush of bad headlines, denials and late-night statements.
Two other SIV-lites arranged by investment banking arm Barclays Capital - Mainsail II and Golden Key - have been forced to sell assets to pay down debt and have seen their credit ratings slashed by up to 17 notches by Standard & Poor's.
Barclays Capital and Cairn said in a statement that the restructuring, which had been approved by investors, was necessary due to the closure of the ABCP market on which the structure had relied on for funding.