A Short History of Vultures

[Judi Lynn]

A Short History of Vultures

Long before Argentina’s latest default, there was Elliott Associates L.P. v. Republic of Panama.
BY Saskia Sassen

AUGUST 3, 2014

When Argentina defaulted on its debt for the second time in 13 years this week, the financial world was shocked, both by the default itself and, perhaps even more so, by the fact that a small minority of debt holders was willing to torpedo Argentina's debt restructuring. But while the fight between Buenos Aires and its creditors may be in the headlines now, it's not a new story. It began 18 years ago with a perversion of international law in a New York City court and a then-obscure hedge fund that called itself a vulture.

One firm in particular deserves the blame for Argentina's current situation -- or kudos for its innovation, depending on how you look at it. In 1977, Paul Singer founded the hedge fund Elliott Associates L.P. with $1.3 million from friends and family. For nearly two decades, the firm grew by investing in various equities markets. But in 1995 Elliott Associates transformed from just another New York City hedge fund to a pioneer in the world of international finance. And today, 19 years later, the newest iteration of the same fund has played a crucial role in bringing Argentina to default.

In October 1995, Elliott Associates L.P. purchased approximately $28.7 million of Panamanian sovereign debt for the discounted price of $17.5 million. The banks holding those bonds, a group that included heavy hitters like Citi and Credit Suisse, had given up on repayment from Panama. To cut their losses they sold their holdings to Elliott.

When Panama's government asked for a restructuring of its foreign debt in 1995, the vast majority of its bondholders agreed. Not Elliott. In July 1996, Elliott Associates, represented by one of the world's most high-profile securities law firms, filed a lawsuit against Panama in a New York district court seeking full repayment of the original $28.7 million -- plus interest and fees. The case made its way from a district court in Manhattan to the New York State Supreme Court, which sided with Elliott. Panama's government had to pay the firm over $57 million, with an additional $14 million going to other creditors.

More:
http://www.foreignpolicy.com/articles/2014/08/03/a_short_history_of_vultures_argentina_default_elliott_associates_panama

[3rdwaydem]

1. Interesting

[Paolo123]

2. The basic problem is the lack on an international bankruptcy court

In the US if a company needed to restructure it's debts and 93% of the creditors (the figure in the Argentina case) agreed and 7% didn't the company could go to the bankruptcy courts and get the restructuring forced on the other 7%.

There is no such process on international debt. The IMF has been charged with trying to set one up but so far has not really done anything. The last time the world asked the US to work on such a system the Bush Administration shot it down.

The problem is that in my opinion Elliot is legally correct on this issue - which is why we need an international bankruptcy court.