Pacific Investment Management Co., the manager of the world's largest bond fund, plans to launch a fund worth at least $1 billion to buy distressed loans from banks.

The fund will buy up past-due debt including commercial and residential mortgage loans, Bloomberg News said without naming its sources. Pimco, as the asset manager is known, plans to then work with a loan servicer to renegotiate the terms of the debt with creditors.

Large banks are selling off past-due loans to meet standards adopted by the Basel Committee on Banking Supervision.

Pimco has experience in this field. Since the credit crisis began, it has raised at least $5 billion to buy distressed debt.

"Valuation is in Pimco's wheelhouse, and valuation is really the main challenge to this type of investing," Geoff Bobroff, an independent fund consultant, told Bloomberg News.

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