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LTCM seeks financing
October 28, 1998: 8:47 a.m. ET

Hedge fund bailout group to replace outside lines of credit, trims staff
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NEW YORK (CNNfn) - The contingent of banks and brokers that rescued Long-Term Capital Management from collapse last month apparently is seeking financing to replace lines of credit from outside banks and may be looking to reduce the number of partners in the hedge fund.
     The Wall Street Journal reports Wednesday that the group overseeing LTCM, a one-time highly leveraged hedge fund whose near collapse sent shock waves through the investment community, wants to replace the secured credit lines that were provided by nongroup lenders as they expire in the next few months.
     Citing sources familiar with the situation, the report also said LTCM laid off 20 percent of its work force in efforts to trim costs. It also said the Greenwich, Conn.-based hedge fund is considering shrinking the size of its partnership base from about 16 to as few as eight.
     LTCM reportedly laid off 33 traders, research analysts and back-office employees Tuesday, mostly in the emerging-market and equity areas.
     It is unclear how much financing will have to be raised, but the Journal said some estimate between 15 percent and 20 percent of LTCM's $100 billion balance sheet was financed by banks outside the group of 14 Wall Street securities firms and commercial banks that bailed out the floundering hedge fund.
     Founded in 1991 by former Salomon Brothers bond guru John Meriwether, LTCM initially specialized in high-volume arbitrage trades between closely linked fixed-income securities. It ran into trouble by spreading into equities and emerging markets when bond yields declined amid low inflation in most developed countries.
     The hedge fund was highly leveraged and on the brink of collapse until the group of financial institutions pulled together a $3.6 billion equity rescue package. Back to top


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