Lone Star Buys Big at Mortgage Fire Sale

Texas fund grabs $6.7B in Merrill castoffs, is hungry for more
By Jim O'Neill,  Newser Staff
Posted Jul 30, 2008 11:48 AM CDT
Lone Star Buys Big at Mortgage Fire Sale
Lone Star bought most of Korea Exchange Bank or KEB, in 2003, and is now selling it for as much as $5 billion in profit.    (AP Photo)

Lone Star Fund is looking to profit from the castoffs of the credit meltdown, buying billions of marked-down assets and betting on just some of them to rebound, reports the Wall Street Journal. The Dallas-based private-equity firm run by John Grayken has closed a deal on $6.7 billion in Merrill Lynch mortgage backed assets once valued at $30.6 billion.

With Merrill financing 75%, Lone Star has some $8 billion to continue its bargain shopping after wrapping up a $10 billion fundraising push last week for its two newest funds.
Grayken honed his investment strategy for Lone Star "while resolving bad debt during the savings-and-loan crisis in the 1980s," the Journal notes, adding that the fund made its name by buying distressed companies and turning them around.
(Read more Lone Star stories.)

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