As soon as Vitesse Semiconductor Corp. said it was under investigation for securities law violations that could delay routine regulatory filings, the Camarillo, Calif.-based 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 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 might be retired if the funds have their way, according to data compiled by Bloomberg, though no one expects that amount to be redeemed early.
Vitesse is among more than 100 companies the Securities and Exchange Commission is investigating for defrauding shareholders by backdating stock-options grants, forcing dozens of companies to postpone filings.
