HEDGE FUNDS

[SPIN]

Bear Stearns to lend US $3.2 billion to bail out one of its hedge funds

By The Canadian Press
Friday, June 22, 2007

NEW YORK (AP) - Bear Stearns Cos. confirmed Friday it will bail out one of its troubled hedge funds with US $3.2 billion in loans.

Bear said it stepped in to save the fund because market uncertainty made it "difficult" to unwind the fund’s assets - mostly securities backed by risky mortgage loans.

The financing will go to the Bear Stearns High-Grade Structured Credit Fund.

That unit and its sister fund, the Bear Stearns High Grade Structured Credit Enhanced Leveraged Fund, have come under pressure as the value of the loans underlying the bonds they hold fell sharply in recent months.

The two "have experienced high levels of margin calls and have had difficulty in creating necessary liquidity and working capital to continue to operate the funds," the company said in a statement.

While the loans will go to the Structured Credit fund, Bear Stearns said it is still working on a solution for the Enhanced Leveraged fund’s problems. The company "will continue to work with creditors and counterparties of the Enhanced Fund to reduce leverage in an orderly manner and improve liquidity," the statement said.

Bear had worked the past week to sell the funds’ assets to generate money to repay investors, which primarily include other Wall Street firms such as Merrill Lynch & Co. and JPMorgan Chase & Co.

Merrill seized collateral reported to be worth $850 million and auctioned the assets earlier this week.

By injecting money into the fund itself, Bear buys time to make trades to generate income, so that it can repay investors who want to get out.

"Our goal is to achieve the best possible results for the funds’ investors under the circumstances," Bear Stearns Asset Management Chief Executive Rich Marin said in a statement.

Bear Stearns shares fell $1.09 to $144.72 in midday trading.

http://www.chroniclejournal.com/CP_stories.php?id=50232