Bear Stearns Offers $3.2 Billion
To Stabilize Troubled Hedge Fund

Officials at Bear Stearns Cos. authorized an eleventh-hour $3.2 billion loan at an executive committee meeting Thursday that is intended to stabilize a troubled internal hedge fund, says a person familiar with the matter.

Bear stepped in with the financing as the fund's managers struggled to settle their debts to a group of Wall Street lenders, including Deutsche Bank AG, Merrill Lynch & Co. and Lehman Brothers Holdings Inc., said this person.

The money will help pay back outstanding loans from those parties to a roughly $1 billion hedge fund called the High-Grade Structured Credit Strategies Fund, this person said. But the future of a sister fund that is more highly leveraged, the High Grade Structured Credit Strategies Enhanced Leverage Fund, which took on at least $6 billion in borrowed capital, remains in doubt, this person said.

Spokespeople for Bear weren't immediately available for comment, but the person familiar with the matter said a press release would be forthcoming. Word of the $3.2 billion loan was first reported by Bloomberg News.

In recent weeks, the High Grade Structured Credit Strategies Enhanced Leverage Fund and High Grade Structured Credit Strategies Fund have been besieged by investors and lenders trying to recover their money as the value of the funds' underlying bonds fell sharply.

The Bear Stearns hedge funds' problems are emblematic of the widening fallout from the nation's housing downturn, which just a few weeks ago seemed to be stabilizing. During the housing boom in the first half of the decade, lenders issued record volumes of mortgages, often on very generous terms, then packaged those mortgages into bonds and sold them off, reducing their exposure to any loans that went bad.

Since 2000, Wall Street has created more than $1.8 trillion of securities backed by subprime mortgages, according to industry newsletter Inside Mortgage Finance. Now, the housing-market slump is causing a spike in mortgage delinquencies and defaults, which hurts the value of those bonds. Worried investors, in turn, are further driving down the bonds' prices.

--Dow Jones Newswires, Serena Ng and David Reilly contributed to this article.

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