by Calculated Risk on 6/19/2007 12:02:00 AM

From the WSJ: Bear-Led Fund Gets Reprieve

Lenders granted a beleaguered Bear Stearns Cos. hedge fund an additional day to finalize a last-ditch rescue plan ...

During a meeting at Bear's Madison Avenue headquarters that lasted nearly three hours, creditors were presented with a bailout plan that included $1.5 billion in new loans from Bear, backed by the fund's assets. The plan also would bring an infusion of $500 million in new equity capital from a group of other banks, and will allow some lender's to reduce their exposure by 15%, said people briefed on the meeting.

The soap opera continues ... This fund started last August with $600 million in equity and $6 Billion in borrowed capital (talk about leverage).

According to the article the fund lost 23% from the beginning of the year through the end of April. Add: Perhaps the 23% is referring to losses on the equity, but then the fund must have suffered more losses since that time based on the size of the bailout. If the 23% refers to the entire fund, then 23% of $6.6 Billion is about $1.5 Billion - not only wiping out all the equity in the fund, but almost $1 Billion in debt too.

UPDATE: From the NY Times: Mortgages Give Wall St. New Worries. This article covers the Bear Stearns hedge fund, but also wonders about the impact on mortgage lending:

After the first cracks in the subprime mortgage business appeared late last year, several large lenders were forced into bankruptcy.

Now, the stress is sending tremors down Wall Street, as investment funds that bought a stake in those loans are starting to wobble.

Industry officials say they expect this second act to be longer and slower, unwinding over the next 12 to 18 months. The fallout could further constrict consumers with weak, or subprime, credit while helping to prolong the housing downturn.

On Wall Street, the impact could be far more significant: It could force banks, hedge funds and pension funds to acknowledge substantial losses, which had been tucked away in complex investment vehicles that are hard to evaluate. In turn, that could limit the money available for mortgage lending.