Two big hedge funds at Bear Stearns moved toward the brink of collapse Tuesday night after Merrill Lynch rejected a bailout plan developed over several days in a drama that could have wide-ranging consequences for Wall Street and investors, the Wall Street Journal reported.
The newspaper said it reviewed documents revealing that Merrill Lynch , one of the hedge funds' lenders, would move to seize collateral -- much of it mortgage-backed debt -- from the two funds and sell it.
The funds' managers also worked with a handful of other key lenders, including Goldman Sachs Group and Bank of America to pay off the funds' $9 billion in loans, the paper said quoting person familiar with the matter.
By early evening, the funds had effectively paid down $2.25 billion of outstanding credit.
In a separate report, Bear Stearns has offered to infuse $1.5 billion of its own capital to help rescue the funds, people familiar with the situation said to Reuters.
The funds controlled more than $20 billion in a combination of investor and lender money, and had invested heavily in various securities backed by subprime loans.