Feb. 20 (Bloomberg) -- Standard Chartered Plc abandoned a plan to bail out its $7.15 billion Whistlejacket Capital Ltd. structured investment vehicle, the largest bank-run SIV to collapse because of ``continuing deterioration'' in markets.

Whistlejacket will become the sixth SIV to default unless it makes a payment tomorrow when a three-day grace period ends, according to Standard & Poor's. SIVs with more than $20 billion of total assets are in default, including funds managed by New York-based Ceres Capital Partners LLC and Cheyne Capital Management (UK) LLP in London.

HSBC Holdings Plc and Citigroup Inc. led banks bailing out their SIVs, funds that use short-term borrowing to buy higher- yielding assets, after the collapse of U.S. subprime mortgages caused investors to shun debt securities that couldn't be valued. SIV assets have shrunk by $100 billion from $400 billion since August, according to Moody's Investors Service.

``It seems Standard Chartered is the only bank sponsor not willing to stand behind its SIV, in the way that HSBC or Citigroup have done,'' said Harpreet Parhar, a London-based credit analyst at Calyon in London. ``There is a reputational risk there.''

Standard Chartered, the U.K.'s sixth-biggest bank by market value, fell 30 pence to 1558 pence at the close of trading.

Freezing Payments

Whistlejacket, based in the U.K. Channel Islands, appointed receivers after the asset value of bonds owned by its most- junior creditors fell below 50 percent, requiring it to wind down.

Deloitte & Touche LLP froze Whistlejacket's debt payments on Feb. 15 after London-based Standard Chartered told the receiver the SIV may not be able to repay future debts, according to Neville Kahn, a receiver at Deloitte.

Deloitte was working with Standard Chartered this week on the bank's proposal to buy assets from the SIV, Kahn said.

``We worked doggedly to find a solution for Whistlejacket,'' said Tim Baxter, a London-based spokesman for Standard Chartered. ``In making our final decision we were conscious of all the various stakeholders - the SIV's investors, our shareholders and our customers.''

Whistlejacket has reduced holdings by more than 50 percent from $18.2 billion in August after it sold assets to repay maturing debt, including short-term commercial paper, Standard Chartered said last month. The SIV still has $6.9 billion of senior debt outstanding as of Feb. 11, according to S&P.

The market for asset-backed commercial paper, IOUs secured by home and consumer loans, shrank $6.2 billion to $796 billion last week, according to the Federal Reserve. Record defaults on U.S. subprime mortgages prompted investors to shun short-term debt backed by assets, cutting off funding for SIVs.

'No Fire Sale'

SIVs typically invest in asset-backed securities and bonds sold by banks and insurance companies with high credit ratings.

Whistlejacket invested about 44 percent of its assets in financial company debt, according to Moody's Investors Service. About 20 percent is in mortgage-backed bonds and 10 percent in collateralized debt obligations, notes that pool other securities.

Standard Chartered blamed the ``impracticality of completing any proposal within the confines of the receivership'' for withdrawing its refinancing plan, in a statement today. The bank also cited the ``continuing deterioration in the market.''

Deloitte is considering ways to refinance the SIV or letting the assets pay down, and is in discussions with a number of financial companies, Deloitte's Kahn said in interview today.

``There is no need for a fire sale of assets,'' he said.

SuperSIV

The threat of fire sales by SIVs further roiling credit markets prompted U.S. Treasury Secretary Henry Paulson to start talks on setting up an $80 billion bailout fund last year. Citigroup, Bank of America Corp. and JPMorgan Chase & Co. abandoned the so-called SuperSIV after banks began rescuing their own funds, led by London-based HSBC.

Citigroup in New York, the largest SIV sponsor, said December it would provide financing for its seven funds, taking on their assets and liabilities. Bank of Montreal yesterday proposed to provide up to $12.7 billion of financing for its SIVs, Links Finance and Parkland Finance.

Standard Chartered first proposed to finance its SIVs Jan. 31, but abandon the plan after the companies' asset prices fell, forcing it to appoint receivers. The bank made two further proposals to the receiver last week.

Whistlejacket sold some assets to investors in its junior- ranking bonds in return for repaying their debt in deals known as vertical slices.

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

Last Updated: February 20, 2008 12:01 EST