Barclays is to plough $1.44 billion of rescue financing into a debt-structured special investment vehicle created by its investment bank and run by hedge fund Cairn Capital.

Cairn High Grade Funding ran into difficulties earlier this month in the wake of the seizure in the credit markets. It had to draw on $442 million of credit lines, in part provided by Barclays, after failing to roll over financing in the commercial paper market.

It is understood that the loan, which comes from Barclays Capital, the bank's investment banking arm, is repayable over three to four years and charges a market rate of interest. The funds raised will finance the vehicle's investments until they mature.

"This has not been an act of charity, it is a commercial decision," said one senior source involved in the deal.

As a SIV-lite, Cairn High Grade Funding would have relied on the short-term funding markets to help finance investments in longer-dated credit products, mostly asset-backed securities.

SIV-lites have faced a pincer movement caught between the crisis in the US sub-prime mortgage market - which represent much of their assets - and the shut down in the commercial paper market, which provides them short-term money to operate.

Two other vehicles arranged by Barclays Capital, Mainsail and Golden Key, have also run into funding difficulties and have been forced to sell assets. Earlier this week, Barclays strenuously denied suggestions it was facing losses of hundreds of millions of dollars.

The commercial paper market has effectively closed as investors rush to safer haven investments; and the value of asset-backed securities has plunged because of soaring delinquency rates on their sub-prime mortgage components.

The Cairn Capital vehicle held no sub-prime assets, investing solely in AAA-rated securities.

While it ran into difficulties earlier this month, it had not yet breached its covenant triggers.

Sources close to both camps said that for this reason it was not a rescue restructuring.

BarCap said today: "Barclays Capital will provide the senior financing on the restructured transaction and has fully hedged its credit exposure from this financing.

"This restructuring has received all required investor consent. Investors have agreed to full participation in the costs of the restructuring."

This came as Barclays shares gained ground after the embattled UK bank emerged as the institution behind a shock £1.6 billion drawdown on the Bank of England’s standby credit facility.

The bank last night moved to nail speculation it was suffering at the hands of the credit crisis.

In an emailed statement, he bank said: "There are no liquidity issues in the UK markets. Barclays itself is flush with liquidity. In these challenging times the dramatisation of such situations is of no help to markets, their members or their customers.”

Today Barclays' shares opened 16.5p higher, gave ground by mid-morning but remained 10p higher at just over 600p at lunchtime.

Wednesday's tapping of the Bank's funding mechanism represented the second time this month that Barclays has had to obtain emergency funding from the UK’s lender of last resort.

Earlier this month Barclays was forced to borrow £314 million from the Bank of England after HSBC could not process a last-minute request for a loan in time for Barclays to settle its account at the Bank.

The identity of the bank with a £1.6 billion shortfall galvanised the City yesterday, coming amid renewed concerns about the willingness of banks to lend to one another.

The London Interbank Offered Rate (Libor), at which banks lend between each other for 90 days, rose yesterday to 6.63 per cent. With the base rate expected to stay at 5.75 per cent over the next three months, analysts said that the huge premium for borrowing was a sign that banks were refusing on a huge scale to lend to one another, despite the clear opportunity for profit.

The loan on Wednesday night was the third-largest borrowing from the Bank of England this year, exceeded only by a £3.9 billion loan in June and a £1.9 billion loan in July. The Bank has granted short-term credit worth almost £10 billion this year.

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