What will happen to the value of the fund?
In general, investment in securities issued by a single issuer is limited to only 10%, hence the effect of the failure of one issuer would not have a significant impact.

However, in the case of funds with specialized structure such as guaranteed funds that are significantly exposed to debt instruments, relief may be granted from compliance with the [10% rule] to allow fund managers to invest in debt securities issued by one counterparty. Dealings might have to be suspended if the underlying assets cannot be fairly valued or there is inadequate liquidity to meet the redemption demand. The risk of concentration in one or few issues are required to be disclosed in the fund's offering document.
Will the fund segregate its underlying assets, whereby the debt instruments will be treated as a separate group of assets whose liquidation / valuation is uncertain, but still allow the fund to continue dealing at an adjusted price based on other assets in it?
Depending on the level of investment, the fund manager and the trustee may ring-fence the debt instruments from other assets of the fund or consider suspension of dealings.

The fund manager may, with the approval of the trustee, adjust the value of any investment as they may deem relevant, provided that such adjustment is necessary to reflect the fair value thereof as at any valuation point. Where necessary, the fund manager, with the approval of the trustee, should seek independent valuation of the assets. If fair value of the underlying assets cannot be obtained, the fund manager should consider suspension of dealings of the fund.