This is big. Highlights from "Options Scam Lets Citadel, Whitebox, Hedge Funds Exploit Corporate Debt" at bloomberg. Thanks foh.
bloomberg.com
``If you have a covenant in your indentures, then you're entitled to current financial statements, and if the company can't deliver them that is a default, no ifs, ands or buts,'' said J. Andrew Rahl, an attorney at New York-based Anderson Kill & Olick PC. ``This is quite straightforward.''
If it is legally default to be late with your financial statements it might be that it would be also possible to claim Credit Default Swap (CDS) protection on this basis. Third parties could be hurt too. I will post a collection of previous posts I made on a possible CDS market endgame. This is now coming so fast I can feel the earth moving.
Look how the last breach of covenants default claim ended:
The options probes offer hedge funds a new twist on an old strategy. Whitebox and Harbert Management Corp. last year demanded that Calpine Corp., the San Jose-California-based power producer, repay $642 million of convertible notes because of what they alleged was a breach of covenants. Calpine filed for bankruptcy protection and never bought back the debt.
One could simply buy the debt, buy CDS protection, buy volatility and then set the whole thing into motion. Surly litigating the case could take years but the lawyers fee's for the whole time could be made in the first week or so.
Consider this:
The market wants volatility,'' Kingman Penniman, president of high-yield research firm KDP Investment Advisors, said in an interview from his Montpelier, Vermont, office. ``The worst thing that can happen is nothing,'' he said. Funds seek to ``find triggers to make things happen.''
Stock-market volatility, as measured by the Chicago Board Options Exchange Volatility Index, is about the lowest since 1997. A similar measure for Treasuries is at an eight-year low.
YanivBA. |
