BSC may shut down two hedge funds soon... 06 19 2007

Yesterday, BSC hedge fund came up with a rescue plan to inject new loans $1.6 billion from BSC and new equities capital worth of $500 mil from existing creditors, includign Citigroup and Barclays. You might think ML would hold its auction of seized BSC hedge fund collateral and the two funds might surve. But later today, ML decided to proceed with its auction, even more than originally planned, increasing from $400 to $850/800 mil, representing the entire collateral. The securites are mostly backed by mortgage and home loans, rated AAA and AA. The resuce plan included stiff requirements that creditors cannot initiate margin call in a 12-month period. That might prompt creditors like ML to cash out soon. The failure of the bailout plan might move two hedge funds to the brink of closing down, causing a wide-range consequences in the market. Implications -BSC suffer little tangible loss, but credit migh be destroyed -chill effect to the industry, UBS Dillon hege fund -ripple effct. BSC might come up with anothe bailout plan because the asset sales might cause the firm to revalue their own investments and those of other funds they lend to. Questions -why loan not equity from BSC Other: Two funds have swooned in recent weeks amid weakness in the market for subprime mortgages.