Bear Stearns ratings stable despite hedge fund woes

NEW YORK (Reuters) - Fitch Ratings and Moody's Investors Service said on Friday their ratings on Bear Stearns Cos. BSC.N are unaffected by the banks decision to provide $3.2 billion in secured financing to a troubled hedge fund at its asset management arm, Bear Stearns Asset Management.

Standard & Poor's earlier on Friday said troubles at a pair of the investment bank's hedge funds would not affect its rating and that Bear Stearns has the financial capacity to provide support for the funds in its current rating.

Bear Stearns said it would provide up to $3.2 billion in financing for a struggling hedge fund it manages. But sources said a second fund is still working out a restructuring plan with creditors. For details, see ID:nN22483393

Bear Stearns, the fifth-largest U.S. investment bank, has held tense negotiations with creditors for more than a week after two funds suffered big losses from bad investments in securities linked to subprime mortgages and other forms of debt.

"The Bear Stearns facility is a collateralized repurchase agreement, which can be readily funded with existing internal cash sources," Fitch said in a statement. "The provision of repo financing is a product offered in Bear Stearns' usual commercial activity and does not constitute an equity investment."

Fitch has an issuer default rating on Bear Stearns of "A-plus," the fifth highest investment grade ranking. The outlook is stable, indicating a ratings change is not anticipated over the next one to two years.

Moody's affirmed its "A1" rating on the bank, also the fifth highest level.

"Bear's extension of credit to the High-Grade fund raises important questions around potential reputation risk and consequent 'moral responsibility' for securities firms which operate in-house hedge funds," Moody's noted in a statement.

"Bear will need to maintain a delicate balance as it seeks to protect its reputation, support value for the fund investors, and protect the firm from collateral losses," the agency warned.

S&P earlier in the day said the hedge fund troubled would not affect Bear Stearns' "A-plus" rating, its fifth highest ranking.

Bear Stearns' 5.5 percent bond due 2015 widened 3 basis points on Friday to 1.23 percentage points over comparable Treasuries, according to MarketAxess. It has widened from 1.11 percentage points over Treasuries on Monday.