Bear Stearns Bails Out Own Hedge Fund With Emergency $1.5B Loan

Bloomberg:

Bear Stearns Cos., the biggest broker for U.S. hedge funds, offered to provide $1.5 billion in loans to help rescue a money-losing fund run by its asset-management unit, a person familiar with the situation said.

The plan calls for New York-based Bear Stearns to provide the money only if some of the hedge fund's creditors, which include Merrill Lynch & Co. and JPMorgan Chase & Co., inject $500 million of cash into the fund, said the person, who declined to be named because the negotiations aren't public.

Bear Stearns, seeking to stave off liquidation of the fund, made the commitment yesterday in a meeting with creditors after losses forced the sale of $4 billion of mortgage bonds last week. Merrill Lynch and JPMorgan had planned to sell another $800 million of bonds of so-called collateralized debt obligations owned by the fund this week, the person said. The fund's potential closure sparked concern about wider losses in the market for subprime-mortgage bonds and CDOs.

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