The last of the complex debt funds at the heart of the credit crisis is paying down senior creditors and withholding management fees in what could be the final chapter of the once $400bn industry.

Sigma Finance, a $28bn structured investment vehicle (SIV), was the largest and oldest of such funds, but due to continued problems with falling asset values and a lack of new funding, it has suffered a series of ratings downgrades that has exacerbated its difficulties.

It was put on review for a downgrade by Standard & Poor’s, the ratings agency, last week after being downgraded in the month to A from AA-.

Now it has breached triggers that mean it must no longer pay cash to junior capital note-holders or to Gordian Knot, its London-based manager, but divert all funds to either pay off senior creditors or build up reserves for future debt repayments.

The SIV industry collapsed in August last year in the wake of the credit squeeze as the access to funding for these vehicles dried up. SIVs borrowed in the short-term commercial paper markets at low rates and lent long at higher rates to make their money. The CP market subsequently seized up because of the squeeze. Gordian Knot said that the managers decided it was more prudent to breach triggers, designed to make sure the SIV services its debt, and use cash held as a liquidity cushion, given the very stressed environment.

Managers said the tests were designed for a business that was rated triple A, and as Sigma is now rated A, trying to comply with the triple A tests would increase the risk to the business.

However, managers insist they are not giving up. “We have every intention of rebuilding this liquidity cushion as soon as this period of extreme market stress abates,” Gordian Knot said.

The recent breach is a further deterioration in the health of the vehicle, yet its managers maintain it is worth fighting to keep the fund alive. They believe it has a future providing important financing to the banking system.

Sigma has kept running while similar vehicles have either collapsed or been taken back on to the balance sheets of the banks that managed them after they breached certain market-value triggers in the wake of the credit crunch.

However, Gordian removed such triggers from Sigma years before the crunch in August last year. Since last summer, Sigma has relied on repurchase agreements to fund its maturing debt. These lines now total $17.3bn, according to S&P.

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