Basis Yield Alpha fund forced into bankruptcy by U.S. mortgage crisis

By Caroline Salls

Pittsburgh, Aug. 30 - Basis Yield Alpha Fund made a Chapter 15 bankruptcy filing Wednesday in the U.S. Bankruptcy Court for the Southern District of New York in connection with its Cayman Islands liquidation proceedings.

The company has requested a temporary restraining order to protect its assets while in bankruptcy.

According to court documents, volatility in the U.S. subprime lending market prompted a significant devaluation of Basis Yield's asset portfolio beginning in June.

The fund said the devaluation of its secured assets led to margin calls from trade counterparties, which Basis Yield ultimately was unable to meet.

As a result, the counterparties began to exercise their rights to close out trades and to seize and/or sell Basis Yield assets that had been the subject of repurchase agreements or over which they held security interests.

Additionally, two counterparties issued bid lists for Basis Yield's assets, "which resulted in additional downward pressure on the relevant asset classes and a further devaluation of Basis Yield's assets."

The fund listed more than $100 million in both assets and debts.

Hugh Dickson of Grant Thornton Specialist Services (Cayman) Ltd. and John Akers of Grant Thornton UK LLP were appointed provisional liquidators for the Cayman Islands proceedings.

A show cause hearing for the temporary restraining order is scheduled for Sept. 6.

Basis Yield is a Cayman Islands mutual fund. Its Chapter 15 case number is 07-12762.

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