March 15 Suntech Power Holdings Co Ltd bondholder Trondheim Capital Partners LP said it would sue the Chinese solar panel maker if it failed to make a principal payment on $541 million of bonds due on Friday.
Trondheim Capital Managing Director Colin Peterson declined to disclose the exact size of the hedge fund's holding, but told Reuters it was enough to make it worthwhile to sue.
"The first step is to sue when a company misses its bond maturity," Peterson said.
Trondheim Capital, based in Scottsdale, Arizona, invests in distressed debt.
Suntech said on Thursday it would continue to work with its lenders on restructuring the debt, but had no plans to make payments.
Suntech was not immediately available for comment on Friday.
The company said on Monday that holders of more than 60 percent of the 3 percent convertible notes had agreed not to exercise their rights until May 15.
A group of bondholders represented by Bingham McCutchen LLP and Duff & Phelps Securities LLC said on Friday that a consensual restructuring that would maximize recoveries for all noteholders was attainable.
Analysts and investors have previously said it was unlikely that Suntech had enough cash to pay off the remaining 40 percent of bondholders.
The government of the city of Wuxi, the solar technology hub where Suntech is based, has been in talks with the company regarding a bailout, people with knowledge of the matter told Reuters earlier this week.
Suntech shares were up 25 percent at 84 cents by afternoon trade on the New York Stock Exchange.
"I don't think it will last. (Suntech) is no longer investable for anyone except extremely short-term investors," Raymond James analyst Pavel Molchanov said.
"But volatility is to be expected until there is more clarity on how the Wuxi government's effective takeover of the company will work."
A Chinese government bailout would not help the convertible bondholders as China-based lenders have the first right to the assets, said Himanshu Shah, chief investment officer of Shah Capital. The firm exited Suntech in early January. (Editing by Sriraj Kalluvila)