Bear Stearns Fund Treading Water
How much longer can the Bear hedge fund keep its head above water?
This story has it all. Nervous creditors. Circling vultures. Illiquid, arcane securities.
Everything but Blackstone. Oops, it would appear they are in the mix as well.
A foundering Bear Stearns hedge fund staved off collapse for another day, getting a 24-hour reprieve from angry creditors in order to allow Blackstone Group to implement a rescue plan.
Beset with nearly 30 percent losses and demands from lenders for additional collateral, known as margin calls, the Bear Stearns High Grade Structured Credit Strategies Enhanced Leveraged Fund is at the thin end of a very, very fat wedge.
The fund’s creditors are listening to a proposal from fund management and Blackstone today designed to avoid the fund’s collapse, presumably involving the combination of a cash infusion and a margin call moratorium.
New York Post
But the sharks smell blood. Hedge funds who have bet on a decline in the marketplace have been making noise, warning regulators to be on the lookout for sign of manipulation, which in this case might be any movement counter to their book. Can you say FUBAR?
Fixed-income markets are boring no more...especially with $150 billion in bad paper floating around and heavyweights lining up to pummel one another.
Have at it boys…
James E. ``Jimmy’’ Cayne helped make Bear Stearns Cos. the mortgage king of the securities industry by packaging home loans into bonds and selling them to clients like Michael Vranos. Now Vranos, who manages $29 billion at Ellington Management Group LLC, is cutting Cayne out of the middle and buying mortgages on his own.
On Wall Street, they call that disintermediation, and it’s eating into almost $9 billion of fees that firms including New York-based Bear Stearns earn from securitizing mortgages. Instead of buying such bonds at markups of 1 percent or more, hedge funds expect to make better returns by taking over bad debts and pressing borrowers to pay up.
The hedge funds are targeting delinquent or poorly written loans, a market JMP Securities LLC analyst Steve DeLaney says may double this year to $150 billion as a record number of borrowers fall behind on payments. Bad bets on mortgages have discouraged bankers from bidding, leaving industry veterans like Vranos to snap up home loans for as little as 30 cents on the dollar. Bloomberg
Somebody is going to make a lot of money here. But shooting against the Bear could bite you in the ass eventually.
Because this Bear has a memory like an elephant.
Blackstone is Bear Fund’s Last Hope
New York Post
Bad Loans Pit Vranos Against Cayne as Hedge Funds Outbid Street
Bloomberg
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