Tuesday, 30 August 2016
Last updated 38 min ago
Jun 19 2007 | 12:17pm ET
It’s shaping up to be a busy day at Bear Stearn’s Madison Avenue headquarters, as the bank struggles to keep a sinking hedge fund afloat.
The news has been all bad for Bear’s High-Grade Structured Credit Strategies Enhanced Leverage Fund: the year-old fund is down more than 20% this year, facing hundreds of millions in redemption requests, as well as margin calls from it’s lenders—the $600 million fund is 10-times levered—and an asset seizure. Over the last several weeks, the fund has sold off some $4 billion in mortgage-backed bonds to meet these demands.
But, yesterday, a tiny bit of good news: Bear won a one-day reprieve from its creditors—including an agreement by Merrill Lynch, which seized $400 million in assets on Friday, to postpone the auction of those assets by 24 hours—as it scrambles to put together a bailout plan acceptable to all. The Wall Street Journal reports that Bear presented a draft plan to save the fund, including $1.5 billion in new loans from Bear itself. That represents a dramatic increase in the bank’s exposure to the flailing fund, which is currently just $40 million.
In addition, according to the Journal, other banks are willing to invest some $500 in new equity capital, allowing some lenders to cut their exposure by 15%. Half of that money would come from Barclays, and the other half from a Citigroup-led creditors’ consortium.
Bear will meet again with creditors today to hash out the rescue plan. Some are balking at Bear’s insistence on a 12-month freeze on collateral calls. In addition, The Blackstone Group is getting in on the action. Reuters reports that the private equity firm will present a rescue plan on Tuesday as well. The firm declined to comment on its rescue efforts.