Pittsburgh Post-Gazette – Hedge funds looking to extract bigger returns from the companies they invest in have come up with a new game of hardball: Fail to file a quarterly report on time, andthey’ll try to make you pay off your debt immediately.
Traditionally, when companies missed a deadline for filing their financial statements, bondholders would look the other way and let the company work out the kinks — even though, technically, the company was in default and bondholders could demand repayment.
But return-hungry hedge funds and other big investors have found an opportunity to profit, thanks in part to a spreading scandal over the practice at many companies of backdating stock-options that were granted to employees as a form of compensation. That practice has come under scrutiny by regulators, and dozens of companies are having to review whether their earnings statements accurately accounted for such compensation — which, in some cases, is delaying their filings.
In one of the largest recent examples, a group of UnitedHealth Group Inc. bondholders last week formally warned the Minnetonka, Minn., insurance company in a letter dated Aug. 25 that it is in default for failing to file its second-quarter report with the U.S. Securities and Exchange Commission. If it doesn’t file the paperwork within 60 days, the group says it has the right to declare the bonds due and payable immediately.
