NEW YORK -- Two Bear Stearns Cos. hedge funds heavily exposed to the flagging mortgage industry filed for bankruptcy protection late Tuesday, two weeks after the company told investors one was essentially worthless and the other had lost more than 90 percent of its value.
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. — which invested in securities backed by risky mortgages — filed for protection under Chapter 15 of the bankruptcy code, according to court documents.
Chapter 15 covers cross-border petitions and was used because the funds are technically registered in the Cayman Islands.
The funds were squeezed after Bear Stearns made wrong-way bets on the home mortgage market and was caught as loans to risky investors began to default. In July, the company said the assets in the Enhanced fund were essentially worthless, while the other was worth 9 percent of its value at the end of April.
The news comes amid media reports that Bear Stearns froze the assets in a third fund with exposure to the credit markets. A Bear spokesman was not immediately available to comment.
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Bear Stearns is the nation's fifth-largest investment bank and specializes in mortgage-backed securities.
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