Oct. 19 (Bloomberg) -- Cheyne Finance Plc and IKB Deutsche Industriebank AG's Rhinebridge Plc, two structured investment vehicles that bought securities backed by home loans, defaulted on more than $7 billion of debt as the value of their holdings fell.

The companies borrow in the short-term debt market and use the proceeds for buying mortgage-backed bonds and collateralized debt obligations. Falling market prices for assets forced the companies to declare all of their debt due this week.

Concern about losses from the companies drove two-year Treasury notes to their biggest weekly gain in five years. Credit-default swaps rose the most in three months this week after the companies warned they faced difficulties.

``The fallout from the credit crisis is far from over,'' said Jim Reid, head of fundamental credit strategy at Deutsche Bank AG in London. ``There are probably more skeletons in the closet. The problem is knowing when and where they are going to emerge.''

Rhinebridge, set up and run by a unit of Dusseldorf-based IKB, missed payment on $65 million of commercial paper yesterday after revaluing collateralized debt obligations, Fitch Ratings and Standard & Poor's said.

Rhinebridge has $791 million of commercial paper and a portfolio with a face value of $1.1 billion, S&P said. The market value of the assets is now 63 percent of face value, having fallen $69 million since Oct. 16 alone, S&P said. Revaluations of CDOs of asset-backed securities have caused a ``dramatic'' fall in value, the rating company said.

Cheyne Bailout

``The proceeds from assets if they were to be sold in the short-term would be below the amount required to make payment on senior liabilities,'' S&P said in a note about Rhinebridge today.

Receivers from Deloitte & Touche LLP are trying to organize a bailout of Cheyne Finance by restructuring its debt or selling its assets. Cheyne Finance hasn't paid commercial paper that matured after the receivers' announcement on Oct. 17, S&P said.

Cheyne Finance's managers said its assets are worth 93 percent of face value, enough to pay back all of its $6.6 billion of senior debt, S&P said. CDOs of asset-backed securities make up 6 percent of Cheyne Finance's holdings.

Ratings companies have slashed their assessment of bonds backed by U.S. mortgages as losses spread. Concern that the housing crisis may deepen escalated this week after Federal Reserve Chairman Ben S. Bernanke said the slump may last through next year.

Moody's Investors Service said last month it will assume its rankings for many subprime mortgage-backed bonds issued since July 2005 are too high when it assesses new collateralized debt obligations. CDOs package pools of mortgage securities and slice them into pieces with varying degrees of risk, from AAA to unrated portions.

Mainsail II Ltd., a SIV set up by London-based hedge-fund manager Solent Capital Partners LLP, said yesterday it had assets with a face value of $1.48 billion and debts of $1.65 billion.

To contact the reporter on this story: Sebastian Boyd in London on sboyd9@bloomberg.net; Neil Unmack in London on nunmack@bloomberg.net

Last Updated: October 19, 2007 13:44 EDT