SIVs, next shoe to drop in global credit crisis?

These risky investment vehicles raise cheap cash by issuing short-term debt called commercial paper and buy higher-yielding securities, often U.S. mortgages, pocketing the difference.

But analysts say widespread failure in these vehicles could mean higher borrowing costs for U.S.-based companies that rely on the asset-backed securities market.

Unlike similar vehicles managed by U.S. companies and Wall Street banks to raise cash for operations and investments, SIVs rely on borrowed cash from other parties and do not have a bank behind them willing to fully repay investors in times of trouble.

Instead, SIVs, which issue 6 percent of the outstanding $1.15 trillion of U.S. asset-backed commercial paper (ABCP), assuage investor concerns by "marking" investments to market daily.

But that is cold comfort now.

Money-market funds, which are big buyers of commercial paper, are spooked by possible contagion from subprime mortgages, or risky home loans granted to low-credit home buyers, and are shunning commercial paper backed by assets.

As a result, SIVs can't raise any new funds and could soon be forced to dump more than $120 billion in investments -- including higher-rated securities backed by mortgages and collateralized debt obligations, or bonds backed by other types of debt -- on jittery investors who are already fleeing risk.

Such a massive unwind could further batter the nearly frozen U.S. asset-backed securities market, possibly even raising borrowing costs for U.S. companies like Ford Motor Co (F.N: Quote, Profile, Research) that rely on its cheaper funding.

"These guys (SIVs) are one of the biggest buyers of asset-backed securities in the marketplace, and if one or two of them decide not to continue operations, that puts a dent in the demand" for securities, said a veteran in asset-backed commercial paper at a major Wall Street bank. That could "end up costing companies throughout the world more money."