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Jens 'n' Frens
Idle thoughts of a relatively libertarian Republican in Cambridge, MA, and whomever he invites. Mostly political.
"A strong conviction that something must be done is the parent of many bad measures."
-- Daniel Webster
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Tuesday, September 12, 2006 :::
Today being the day before the second Wednesday of September, the polls in New York are open; I just cast a feckless vote for the rule of law against its trappings. Interesting having that choice on the same day as I encounter a story about companies getting in unforeseen trouble of a legal nature.
Whitebox, which oversees $1.6 billion in assets, bought about a third of Vitesse's $100 million of convertible bonds in the second quarter, when the company announced the [SEC] probe, regulatory filings show. Convertibles are debt securities that can be exchanged for stock at a preset price.
The fund figured that the investigation might cause Vitesse to violate its borrowing agreements, requiring it to repay at 100 cents on the dollar debt that had fallen below 90 cents.
...
Hedge funds are seeking to profit by enforcing [bond covenants].
I find it interesting the article is so sympathetic to the debtors. This is trouble of their own making, and something at least fairly foreseeable; it was an integral, sensible part of their financing.
"The corporate position is that these are obscure technical matters where aggressive investors are trying to exploit the situations," Redleaf said. "Then why are there 200 page indentures? Why do you negotiate for interest-coverage ratios if none of it matters?"
Hedge Fund Sympathizers
Redleaf has his supporters, especially now that a record number of leveraged buyouts and stock buybacks are hurting debt prices.
"Bondholders who bought investment-grade bonds in 1975 didn't contemplate that one day companies would undergo leveraged buyouts and deliberately destroy their balance sheets," said Martin Fridson, head of New York-based high-yield research firm FridsonVision LLC. "It's very hard for me to find any sympathy for the companies trying to portray hedge funds as pirates. You signed a contract."
Investors who owned HCA Inc.'s bonds saw the value of their investment tumble 10 percent in July after the Nashville, Tennessee-based hospital owner announced its $33 billion LBO, the biggest ever, Merrill Lynch data show. Buyout firms typically acquire a company by putting up a third of the price in cash and borrowing the rest, usually resulting in lower credit ratings.
"I would not characterize us as an activist hedge fund but we care about every single investment we make and we'll act in a way that is consistent with our right and entitlements," Whitebox's Redleaf said. Back-dating of options is "really bad behavior on management's part. It's not an innocent non-dotting of an 'i.'"
::: posted by dWj at 8:40 PM
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