Two Bear Stearns hedge funds that invested heavily in securities backed by subprime mortgage loans are close to being shut down.
Merrill Lynch & Co., one of the fund's lenders, have seized $800 million of assets from troubled hedge funds managed by Bear Stearns, sources familiar with the situation said told Reuters today.
The assets of the High Grade Structured Credit Strategies Enhanced Leverage Fund and the High Grade Structured Credit Strategies Fund are expected to be sold off later today, and are mainly collateralized debt obligations supported by asset-backed securities, said dealers that had seen the list of securities up for sale, according to Reuters.
At the same time, the funds' managers is working with several other lenders, including New York-based Goldman Sachs Group Inc. and Charlotte, N.C.-based Bank of America Corp., to pay off the funds' $9 billion in loans, according to The Wall Street Journal.
The struggling High-Grade Structured Credit Strategies Enhanced Leverage Fund has suffered from 23% losses through April, due to woes in the subprime mortgage industry and faced demands from creditors to post additional collateral.
Late last week, the fund sold off at least $4 billion of mortgage securities, to help pay for client redemptions and expected margin calls
(InvestmentNews, June 19).