A $6.6 billion (£3.3 billion) special investment vehicle (SIV) run by the London hedge fund Cheyne Capital was fighting for survival today after investment losses sparked the possibility that it would be forced into a controlled liquidation.

Cheyne Finance, a big investor in securitised property deals, told investors that it was working on several rescue plans, including trying to recapitalise or restructure the portfolio and asking its lending banks to lengthen the terms of its debt.

As Cheyne's SIV became the latest casualty of the international credit crunch and the shutdown of the commercial paper markets, it said it had drawn down all of its availability credit, or liquidity facilities, and had enough cash and other funds to meet its liabilities until the end of November.

"Market conditions remain difficult, with asset prices continuing to be marked lower," Cheyne Finance said. "We have been actively selling assets and reducing the size of the portfolio, and have raised sufficient cash to cover projected liabilities for the next few months."

It said it would continue to sell off assets, which are primarily held in mortgage-backed securities, and hoped to strike agreement with its creditors and banks to recapitalise the fund and lengthen its debt liabilities.

If Cheyne Finance fails with its rescue attempt, the vehicle will be wound down gradually.

Standard & Poor's, the rating agency, said last night that the losses, triggered by falls in the value of its investment assets, forced it to downgrade Cheyne Finance's commercial paper ratings as well as its medium-term notes.

Both ratings were put on CreditWatch by S&P, with "negative implications", a term that suggests another downgrade is possible.

"In accordance with the program documents, the portfolio manager ... may begin an orderly liquidation of assets," Lapo Guardagnuolo, an analyst at S&P, said.

Mr Guardagnuolo said Cheyne Finance should be able to estimate the level of proceeds from future asset disposals by tomorrow.

The plight of Cheyne represents the latest example of the havoc being wreaked by the closure of the commercial paper markets, which has prevented companies from gaining access to short-term funding.

Investors, spooked by fears of a credit market meltdown, have refused to lend in this market because of fears of the high potential cost of refinancing this over the longer term.

However, the vehicle's predicament could have been much worse. During the past few months, Cheyne has been selling off assets. Since June it is thought to have sold $4.4 billion worth.

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive