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| BondsOnline.com: instant access to and extensive coverage of over 3.5 million stocks, bonds, indexes and other securities covering major and emerging markets and exchanges across the globe. |
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| Bonds Online |
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| 5/10/2013Market Performance |
| Municipal Bonds |
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S&P National Bond Index
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3.00% |
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S&P California Bond Index
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2.96% |
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S&P New York Bond Index
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3.13% |
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S&P National 0-5 Year Municipal Bond Index
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0.70% |
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| S&P/BGCantor US Treasury Bond |
400.09 |
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| Income Equities: |
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| Preferred Stocks |
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S&P U.S. Preferred Stock Index
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848.03 |
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S&P U.S. Preferred Stock Index (CAD)
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636.26 |
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S&P U.S. Preferred Stock Index (TR)
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1,701.05 |
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S&P U.S. Preferred Stock Index (TR) (CAD)
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1,276.26 |
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| REITs |
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S&P REIT Index
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174.07 |
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S&P REIT Index (TR)
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425.30 |
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| MLPs |
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S&P MLP Index
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2,469.58 |
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S&P MLP Index (TR)
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5,428.50 |
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See Data
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Hardball hedge-fund tactics bad news for bond investors |
By Rachel Beck
Associated PressNEW YORK, November 1, 2006 – Hedge funds are known for playing hardball to boost their returns, and now they’re using those tactics on companies caught in the stock-option scandal.
Many of those companies – which include names such as Vitesse Semiconductor Corp., UnitedHealth Group Inc. and Medarex Inc. – decided to delay the release of quarterly financial reports while they investigated their option granting practices. Hedge funds say that means the companies are in default on bond covenants and want them to pay up.
While such demands are within legal limits, it could result in a big hit to some companies as they struggle to come up with enough cash to buy back the bonds.
That could mean more bad news for stockholders, who in many cases have already seen the value of their holdings plunge in recent months amid allegations that the grant dates of stock options to executives were manipulated to when share prices were depressed.
More than 135 companies face government or internal probes on such actions, which is forcing many to be late in filing quarterly 10-Q reports with the Securities and Ex- change Commission.
Such delays can put them in technical default on their bonds – something that bond investors in the past may have overlooked.
Not this time.
“The backdating scandal was brought about by boldfaced mismanagement,” said Jeff Ross, an attorney at Anthony Ostlund & Baer in Minneapolis who has represented bond trustees and investors in some of these cases. “The consequence of that misbehavior is a default to bondholders.”
Those with the most to gain are investors who have scooped up corporate bonds that trade below face value. If they demand repayment at full value and get it, they stand to make outsized returns.
There is also money to be made if companies offer up some kind of consent fee to persuade bondholders to give them more time to comply with reporting requirements.
“At work here is a group of investors that is very opportunistic,” said Sol Samson, managing director at the credit-rating agency Standard & Poor’s. “They are saying, ‘You violated your bond covenant and that entitles us to our pound of flesh.’ ”
Among those being targeted is Vitesse, where bondholders are calling for payment of $96.7 million since the company is in technical default.
Minneapolis-based Whitebox Advisors holds nearly a third of those bonds. Since it disclosed its holdings in a filing with the SEC in mid-August, Vitesse’s convertible bonds have gone from below 83 cents a share on the $1 to almost 90 cents.
The Camarillo, Calif.-based company issued a statement in August that said it believes it is not in default and was making good-faith effort to resolve the dispute. But CEO Chris Gardner noted that the demands by some of the debtors “have far exceeded anything that we could consider reasonable under the circumstances.”
The real issue is whether Vitesse could even afford to pay the bondholders. According to analysts’ research from last summer, Vitesse had about $30 million in cash and cash equivalents available as of late June.
That’s bad news for its already battered stockholders, whose shares approached $100 in 2000 when Vitesse was viewed as dot-com success story. Its shares now trade just over $1, down sharply from this year’s high that topped $3.60 in March before the backdating issues were raised.
The company did not return calls for further comment.
Amkor Technology Inc. was about to miss the deadline for having to pay bondholders, who had been demanding repayment of more than $1.5 billion in debt. Amkor, according to the Wall Street Journal, had reportedly said it would file for bankruptcy if that had to be paid, something company spokesman Jeffrey Luth declined to comment on. Amkor also tried to negotiate with the debtors, offering up a $28.1 million consent fee.
Things, however, are looking up for Chandler, Ariz.-based Amkor since it ended its options probe Oct. 6 by restating financials from 1998 through June 30 of this year and taking a non-cash charge of $106 million for stock-based compensation. Its stock, which had lost a third of its value in recent months, has soared nearly 40 percent to around $7 recently.
“We believe this is the best possible outcome for stockholders as well as bondholders given Amkor’s ongoing operational improvement,” Deutsche Bank analyst Steve O’Rourke said in a note to clients.
No doubt: Hedge funds may be preying on troubled companies for their own benefit. But they can’t be blamed for getting the companies in this bad spot to begin with.
Rachel Beck is the national business columnist for The Associated Press. Write to her at rbeck@ap.org
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