Two Bear Stearns Hedge Funds Declare Bankruptcy, a Third Freezes Assets
By Jason Simpkins
Two Bear Stearns Cos. hedge funds filed for bankruptcy Wednesday while another froze its assets. The Bear Stearns High-Grade Structured Credit Strategies Master Fund Ltd. and the Bear Stearns High-Grad Structured Credit Strategies Enhanced Leverage Master Fund Ltd. have filed for protection under Chapter 15 of the bankruptcy code.
It became evident that the sub prime crisis had spread to other sectors of the prominent hedge funds when the company began telling investors that of the two now bankrupt funds one was essentially worthless and the other had lost more than 90% of its value. The funds relied heavily on securities backed by risky sub prime mortgages and were devastated when defaults on sub prime loans rose to a ten-year high.
The third fund, the Bear Stearns Asset-Backed Securities Fund, is hardly related to the housing market at all, but withdrawals were halted after investors started to panic. The fund has approximately $900 million invested in securities, 0.5% of which relate to the sub prime market. It was up 5% this year through June, but began to drop in July as investors began to look for escape routes.
News of the halt in withdrawals came after the close of the stock market’s regular session Tuesday, during which Bear Stearns shares sank $6.03, or 4.7%, to $121.22. In after-hours trading, the stock slid 3.5% to $116.95. However, the fund isn’t carrying any debt and reportedly holds about $50 million in cash and gets $13 million in principle and interest monthly.
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