Hedge funds are buying into Le-Nature's bank debt with the intention of suing agent bank Wachovia and the company's auditors, according to distressed traders. Uncertainty over potential litigation arising from Le-Nature's bankruptcy has caused wild fluctuations in the trading of the bank debt. One trader said he had never before seen the debt of a distressed company bounce around so much. The debt has bounced from the lows 30s to the mid-50s, before dropping to the high 40s. Thursday afternoon it was trading in the 42-44 context. A Wachovia spokeswoman did not return calls.
"It is a virtual certainty Wachovia will get sued," said the trader. "[Investors] will figure out some way to get into their pockets." He added investors' intentions to sue are what has the debt trading in the low 40s. Investors can't be buying into the debt solely for the value on the assets because they are virtually worthless, he said. Le-Nature's produces flavored bottled waters, ice teas and fruit juices. Its debt tanked two weeks ago after a court forced three senior executives to leave the company on evidence of fraud and potentially criminal conduct by one or more of its management team.
