July 15 (Bloomberg) -- The first auction of assets by a structured investment vehicle drove Moody's Investors Service to downgrade the Cheyne Finance Plc SIV by five levels, describing it as a ``fire sale.''

The $6 billion SIV set up by London-based Cheyne Capital Management (UK) LLP is scheduled to auction its assets this week or transfer them to a new company under a reorganization by receivers Deloitte & Touche LLP and Goldman Sachs Group Inc. Moody's said it cut the SIV's senior debt to Ca, its second- lowest grade, in a report today.

Cheyne Finance was the first of the companies that financed themselves in the short-dated commercial paper markets to buy longer-dated assets that defaulted after investors shunned all but the safest government securities because of contagion from the collapse in subprime mortgages last year.

``Moody's has taken into account the expectation that prices achieved at auction may be significantly lower than prices that may be expected through an orderly and selective liquidation,'' analysts led by Paul Kerlogue and Henry Tabe wrote in the report.

``Severe price declines'' have cut the value of the SIV's assets to 62.9 percent of face value as of July from 99.5 percent a year ago, Moody's said.

Investors can opt to receive cash for their holdings after the auction or exchange them for new securities issued by the new company, Moody's said. The ratings don't take into account any recovery investors may get from the new notes, Moody's said.

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

Last Updated: July 15, 2008 12:05 EDT