Sept. 12 (Bloomberg) — As soon as Vitesse Semiconductor Corp. said it was under investigation for securities law violations that may delay routine regulatory filings, the Camarillo, California, maker of computer chips also learned it was about to be held up for ransom in the bond market.
How Vitesse bonds and the debt of dozens of companies are being exploited by hedge funds, including Citadel Investment Group LLC, Whitebox Advisors LLC and Aristeia Capital LLC, is the story of fine print in prospectuses allowing creditors to demand immediate payment of principal when earnings reports are delayed.
At stake is as much as $36 billion of bonds that may be retired if the funds have their way, according to data compiled by Bloomberg. While no one expects that amount to be redeemed early, almost $200 million in premature payments may be made, says New York-based law firm Latham & Watkins LLP. The Securities and Exchange Commission is probing more than 100 companies for defrauding shareholders by backdating stock options grants, forcing borrowers from UnitedHealth Group Inc. to Amkor Technology Inc. to postpone filings.
