Vitesse Semi Feels Debt Heat

Troubled chipmaker Vitesse Semiconductor(VTSS) is facing a potential debt debacle.

The Camarillo, Calif., company said in a filing late Monday that the trustee for $96.7 million in convertible bonds has declared the notes immediately due and payable.

The trustee, U.S. Bank National Association, told Vitesse that the company defaulted on the terms of the bonds by not filing its financial report for the quarter ended March 31 on time. As a result, U.S. Bank is seeking accelerated payment of the 1.5% convertible subordinated debentures due 2024.

Vitesse said that it believes it is not in default and that it rejected the trustee's notice of default in May as well as its attempt to accelerate payment.

"Vitesse made a good-faith offer to resolve this dispute," said CEO Chris Gardner in a statement. "Unfortunately, the demands by some of the holders of the debentures have far exceeded anything that we would consider reasonable under the circumstances."

Vitesse said it is in negotiations with the majority of the bondholders, who have agreed to instruct the trustee to forbear from taking any further action for 14 days.

CIBC analyst Allan Mishan said the situation presents a serious risk to Vitesse, as the company has only $30 million of cash on its balance sheet and is still in a cash-burn position. "We believe Vitesse does not have the financial strength to make these payments, and a liquidity crisis could result if this dispute is not resolved," Mishan wrote in a note to investors.