Sigma Finance Corp., a failed structured investment vehicle of the London asset manager Gordian Knot Ltd., was expected to auction as much as $2 billion of its asset-backed bonds and bank debt Tuesday.

Moody's Investors Service Inc. downgraded Sigma's debt one level, to C, its lowest credit rating, citing the auction. The agency said Monday that Sigma is unlikely to recover any of the $7.6 billion of assets it pledged as margin for short-term loans known as repurchase agreements.

Attilio di Mattia, who helps manage $3.8 billion of investments at Aurelius Capital Management GmbH in Vienna, said: "The bonds look like all the assets Sigma couldn't repo because the banks wouldn't accept them as collateral — the worst of the worst."

Sigma was created in 1995 and failed in October after lenders refused to buy the short-term debt it issued to buy higher-yielding assets.

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