Another Hedge Fund Bail-Out

From the WSJ:

Barclays Capital rescued from collapse a structured investment vehicle it helped set up last year, after other so-called "SIV-lites" it arranged were forced to wind down.

Barclays Capital, the investment-banking arm of Barclays PLC, said it will provide $1.6 billion in financing to Cairn High Grade Funding I, a vehicle of Cairn Capital, a London-based structured credit specialist that manages about $9 billion.

The funding will be used to redeem maturing commercial paper, and will stay in place until the underlying securities held by Cairn High Grade Funding mature over the next four years or so. But the bank said it has fully hedged its exposure to the underlying U.S. residential mortgage-backed securities in the Cairn portfolio.

Amid concern about Barclays's exposure to Cairn and similar vehicles, the bank on Thursday acknowledged it had borrowed £1.6 billion Wednesday from the Bank of England standing lending facility, citing a technical breakdown in the U.K. clearing system.

The financing announced Friday came as Cairn High Grade Funding teetered on the brink of collapse, having had to recently draw on $442 million in backup liquidity lines from Barclays PLC and Danske Bank after being unable to roll over maturing commercial paper. Ratings agencies Standard & Poor's Corp. and Moody's Investors Service last week said they were reviewing the vehicle's ratings for possible downgrade.