Meet the billionaire hedge-fund manager at the center of Argentina’s default
By Rebecca Robbins July 31 at 3:32 PM
When Argentina defaulted on its debt for the second time in 13 years this week, it was largely because of the legal pressure applied by one group of investors led by billionaire hedge fund manager Paul Singer.
... missed a deadline for more than $500 million in interest payments that were due to bondholders. ... case even more curious is its link to Singer, who has become known for picking — and winning — fights with foreign governments over his hedge fund Elliott Management’s investments.
He’s tussled with Peru, taking the country to the brink of default in 2000. He’s taken on Congo-Brazzaville, pushing the country to settle after he uncovered alleged corruption within the country’s government.
But he’s never gone as far as he has with Argentina, which the ratings agency Standard and Poor’s declared in selective default on Wednesday, meaning that it has the wherewithal to pay its creditors but will not agree to.
Argentina’s debt troubles date back to its last default in 2001, when it gave up on its sovereign debt payments to its bondholders. As the country’s finances rebounded, the majority of the country’s creditors agreed to a restructured debt package, but a handful turned the deal down. Led by the NML Capital division of Singer’s hedge fund, a group of holdout creditors have pushed Argentina to repay them in full, $1.5 billion. (Elliott officials have also said they would be willing to negotiate the terms.)
Argentina says a large payment could expose it to a cascade of claims that it cannot afford to pay.
The creditors have sued the Argentinian government, scoring a victory in 2012 when a federal court in Manhattan ruled that Argentina must first pay the holdouts before paying its other bondholders, leading to the country’s default on Wednesday.
Argentinian politicians and their supporters have blamed the hedge funds for refusing to compromise, but Singer’s hedge fund denied culpability for the default of one of Latin America’s largest economies and say they have been willing to negotiate a deal.
...These hedge funds say they are simply collecting on their legitimate debt holdings, but critics call them “vultures” who prey on developing countries and unsettle the global economic balance.
...
While distressed-debt investing remains a niche investment strategy, it has boomed since the recession. Total assets in the 300 hedge funds that buy up distressed and restructuring debt reached about $183.8 billion at the end of the second quarter of this year, a $100 billion increase since 2008, according to Hedge Fund Research.
Within the distressed-debt market, Singer is a leader. A prominent Republican donor with libertarian views, he’s never been one to shy from a fight and has been an ardent critic of the Federal Reserve.
It’s unclear just how much Singer stands to make if he can force Argentina to pay up, because it’s not known how much his hedge fund originally bought the defaulted debt holdings for. But Mark Brodsky of Aurelius Capital Management, another one of the creditors holding out against Argentina, said last year that his hedge fund stands to make some $500 million in profit if it wins the dispute.
Several financial historians said they can’t remember another time that hedge funds had pulled a government into default, though they noted that there was some precedent for litigation surrounding sovereign debt.
“The whole affair is reminiscent of vulture investors 25 years ago who would buy up distressed debt at a deep discount and hope to profit on subsequent good news,” Charles Geisst, a finance professor at Manhattan College, said in an e-mail. “But taking a large debtor to court is a more recent development and illustrates the extent of the profit to be made if they are successful.”
Although talks between Argentina and the hedge funds have been unsuccessful thus far, an accord could still be reached out of court. Citing an unnamed source, the Wall Street Journal reported Thursday that JPMorgan Chase could step in to buy the disputed bonds.
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Source - Washington Post - here.
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Hedge funds buy up debts and somehow make massive profits, by look of it.
Looks like Argentina shouldn't have given up its sovereign debt to bondholders back in 2001.
Not entire clear on that, but expect they gave over their 'foreign debt payments' to hedge funds.
Argentina can pay; but payment is at issue because it exposes them to other claims.
Like the bit about hedge funds being 'vultures' preying on developing countries. Probably accurate.
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