Sept. 5 (Bloomberg) -- Moody's Investors Service downgraded or placed on review for downgrade $14 billion of bonds sold by funds that rely on the commercial paper market for borrowing, known as structured investment vehicles.

Moody's stripped Cheyne Finance Plc, the unit of London- based hedge fund Cheyne Capital Management Ltd., of some of its investment-grade ratings. One portion of the fund's debt was slashed 11 levels to Caa2 from A3, Moody's said.

``It seems clear that the situation has not yet stabilized and further rating actions could follow if the situation continues or deteriorates,'' Paul Mazataud, group managing director at Moody's in Paris, said in a conference call today.

Structured investment vehicles, or SIVs, sell commercial paper and medium-term notes, using the money to invest in longer- dated bonds including mortgage-backed debt. Losses on securities linked to U.S. subprime home loans has the roiled the market for commercial paper after investors refused to buy the funds' securities.

Moody's said it may downgrade two funds set up by Brightwater Capital Management, an investment unit of WestLB in Dusseldorf. The funds are called Harrier Finance Funding Ltd. and Kestrel Funding Plc.

The ratings company may also cut the ratings of Rhinebridge Plc, a fund set up by IKB Deutsche Industriebank.

Moody's said its rating actions reflected the deteriorating market value of the funds' portfolios and the potential impact of a forced sale of assets to meet liabilities.

New York-based Moody's said it may also cut the short-term ratings of Cheyne Finance and Kestrel Funding. Both currently have the highest commercial paper ranking of Prime 1.

The ratings company changed the way it rates the funds, citing ``unprecedented market volatility.''

SEC Investigates

The U.S. Securities and Exchange Commission said today it's scrutinizing the biggest Wall Street securities firms to find out whether they face losses from SIVs that sold short-term debt.

Citigroup Inc., the largest U.S. bank, is one of several lenders that may suffer if they're forced to cover losses from SIVs, the Wall Street Journal reported today. Citigroup has about a quarter of the market for the funds, representing almost $100 billion of assets under management, the Journal said.

To contact the reporter on this story: Neil Unmack in London at nunmack@bloomberg.net

Last Updated: September 5, 2007 12:09 EDT