Bear Plans Subprime Auction - TheStreet

Bear Plans Subprime Auction

The firm continues to raise cash to bail out a struggling hedge fund.
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Bear Stearns

(BSC)

is set to offload about $450 million of securities tied to one of its failing hedge funds.

The offering consists of securities from a cash collateralized debt obligation tied to a credit from debt backed by subprime mortgages. The CDO debt list is peppered with fixed- and floating-rate junk debt but includes primarily securities that carry higher-credit quality as rated by Standard & Poor's and Moody's Investors Service.

Observers had expected that Bear might call off the offering, given Tuesday's firestorm wrought by Moody's and S&P's threatening to downgrade of billions of dollars' worth of bonds backed by subprime mortgages. Shares of the big brokerage houses were hit hard Tuesday after S&P put $12 billion worth of mortgage-backed securities on watch for possible downgrades, citing hefty losses tied to rising defaults and delinquencies.

Bear Stearns shares were hit particularly hard, dropping 4% Tuesday and sinking an added 1.4% Wednesday.

Lehman Bros.

(LEH)

,

Merrill Lynch

(MER)

and

Morgan Stanley

(MS) - Get Report

were off fractionally Wednesday after dropping 2% to 4% Tuesday.

Despite the worries, Bear appears set to follow through with the sale. A spokesman didn't return calls Wednesday seeking comment.

It's hard to say how the debt might trade in the market in light of all the distress in subprime, one CDO manager says, noting that previous offerings from Bear have fared "OK." He was unable to provide pricing on past Bear deals.

Bear Stearns has been attempting to bail out its troubled hedge fund High-Grade Structured Credit Strategies Fund with a $1.6 billion credit facility. Another, more highly leveraged, hedge fund -- High-Grade Structured Credit Strategies Enhanced Leverage Fund -- also has been languishing, but Bear has made no plans to help that vehicle.

Bear fell $2.28 to $135.68, putting it 20% below its February high around $170.