Aug. 29 (Bloomberg) -- Cheyne Capital Management Ltd., whose Queen's Walk mortgage bond fund reported losses in June, may be forced to sell assets backing a $6 billion commercial paper program after a global credit market rout.

The Cheyne Finance LLC fund has been selling investments and has enough cash to repay commercial paper due through November, London-based hedge fund company Cheyne Capital Management said in a statement. Standard & Poor's cut Cheyne Finance's ratings yesterday, citing the deteriorating market value of its assets.

Companies that depend on commercial paper, debt due in 270 days or less, are facing funding shortages as investors refuse to buy debt secured by assets including U.S. subprime mortgages. Rhinebridge Plc, a fund managed by Dusseldorf-based IKB Deutsche Industriebank, yesterday said it sold $176 million of assets after it couldn't find buyers for its short-term debt.

``We will see more names fall by the wayside,'' said Tom Jenkins, an analyst at Royal Bank of Scotland Group Plc in London. ``The sales will look increasingly distressed.''

Cheyne Finance has drawn on all three of its emergency funding facilities and will continue to sell assets to meet its liabilities. Cheyne is working on recapitalizing or restructuring the company and extending its debt maturities.

Profits Cut

Cheyne also runs Queen's Walk Investment Ltd., a fund that invested in mortgages and reported in June a loss of 67.7 million euros ($92 million) in the year ended March 31.

Funds like Cheyne Finance, so-called structured investment vehicles, typically sell commercial paper and use the proceeds to purchase bonds with longer maturities.

HBOS Plc, the U.K's largest mortgage lender, said last week that it would repay about $35 billion of commercial paper owed by its Grampian Funding LLC unit as contagion from the subprime slump drove up the cost of borrowing.

More than 20 companies, including San Francisco-based Luminent Mortgage Capital Inc. and Thornburg Mortgage Co. in Santa Fe, New Mexico, have been unable to roll over asset-backed commercial paper. Thornburg said earlier this month that it sold $20.5 billion of securities at about 95 cents on the dollar to pay down commercial paper it couldn't refinance.

``Investors are not going to refinance you in this environment,'' said Craig Saalmann, credit strategist at JPMorgan Chase & Co. in Sydney.

KKR Affiliates

On Aug. 15, Fitch Ratings said Kohlberg Kravis Roberts & Co. affiliates KKR Atlantic Funding Trust and KKR Pacific Funding Trust may have to sell securities because of losses.

There are about $385 billion outstanding in structured investment vehicles and 23 percent of their assets are mortgage securities or collateralized debt obligations that often hold mortgages, according to an Aug. 9 report by Bear Stearns Cos.

Near-term sales from the vehicles because of losses in the market value of subprime mortgage securities may total $23 billion, Bear Stearns said.

The Cheyne portfolio is primarily invested in ``real estate securitizations'' and none of the assets have had downgrades, S&P said. Structured investment vehicles often aren't backed by credit lines from banks like asset-backed commercial paper programs, of which there are $1.05 trillion outstanding.

S&P lowered the credit rating on the commercial paper issued by Cheyne Finance by two levels to A-2 from the highest level of A-1+. The rating on senior debt was cut six levels to A- from AAA.

The average yield on the highest rated asset-backed commercial paper with one-day maturity has risen 0.71 percentage point this month to 6.04 percent as investors have fled funding linked to subprime mortgages, according to Bloomberg data.

Securities of subprime mortgages to people with poor credit or high debt have lost value because of the highest delinquency rate in four years.

To contact the reporters on this story: Darrell Hassler in Chicago at dhassler@bloomberg.net; Neil Unmack in London at nunmack@bloomberg.net

Last Updated: August 29, 2007 07:53 EDT