A correspondent sent in an article citing some sources saying that a Suntech exchange offer is being negotiated or is in the works. Here are the highlights:
- "We believe the company is negotiating a settlement with the debt holders [...s]ome mix of cash, equity, and a new bond with a longer maturity seems most likely."
- "Suntech may offer investors new bonds with higher yields and increase the payment period..."
- "[T]he possibility of a debt restructuring that may eventually wipe out equity value looks more realistic..."
I think the bondholders would want to take control after the exchange offer, i.e. receive at least half of the equity. Another constraint is that the current market value of the stock is a little over half the face value of the bonds. Also, I don't think there is much cash to offer to bondholders.
So the third quote rings true - basically wiping out current equity because so much will need to be transferred to the bondholders.
This would be the best possible outcome for the long bonds short stock trade (which is probably the trade that a lot of the bondholders have on) because the stock would get crushed while the bonds would preserve some value.