Bear Stearns Cos. is proposing a $3.2 billion bailout of a money-losing hedge fund, the biggest rescue since 1998, to forestall creditors from seizing assets, people with knowledge of the proposal said.
The firm told lenders to the High-Grade Structured Credit Strategies Fund yesterday that it would assume their loans, said the people, who declined to be named because the plan is confidential. The New York-based firm made the offer after creditors including Merrill Lynch & Co., JPMorgan Chase & Co. and Lehman Brothers Holdings Inc. put some of their collateral up for sale to investors.
Largest Since LTCM
``The problem is not what we see happening, but what we don't see,'' said Joseph Mason, associate professor of finance at Drexel University in Philadelphia and co-author of an 84-page study this year on the CDO market. ``We don't know the price of these assets. We don't know which banks are exposed to this sector. These conditions are the classic conditions for financial crises across history.''
The bailout of the fund would be the largest since Long-Term Capital Management LP, which received $3.5 billion from 14 lenders in 1998. The Greenwich, Connecticut-based fund, run by John Meriwether, lost $4.6 billion.
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