Case study on Sovereign Debt (Argentina)

[brattzz]

On paper it's US$1.5B cash backend, CDS can go up to 20x,50x that value..
BIG business, US hedgies are damn shrewd!

Argentine relies a high percentage on US for it's GDP and bonds sales, maybe they can seek out China's assistance instead?

[corydorus]

The issue is not whether Argentina need to get help to pay up. Is about moral right. Hedge fund holding the country hostage through a small percentage of the total holding demanding drastic unequal rights. I think the justice system in US needs to be reviewed.

[brattzz]

fair enough,

To have a US Judge exceuting the rights of the Eillot is quite smart actually!
Agrentina bank account is held and bonds issued in US!

[specuvestor]

For those who want to have a quick understanding of Argentina's latest default, I have pasted 2 urls..

Argentina had 8 defaults since 1816.. And its inflation is 35-40% ? how to get out of this ....hole

http://www.cbsnews.com/news/q-a-the-arge...explained/

https://mises.org/daily/6825/Understandi...ng-Default

The issue is not whether Argentina need to get help to pay up. Is about moral right. Hedge fund holding the country hostage through a small percentage of the total holding demanding drastic unequal rights. I think the justice system in US needs to be reviewed.

For sure Argentina is not faultless but one important info that most missed out is that Elliot bought the bonds on a SECONDARY market. They were not the lenders that lent to Argentina. There is a difference.

We have now 300 people taking 41 million people hostage over $1.5b personal interest that would snowball to potentially >$200b liability.

http://dealbook.nytimes.com/2014/07/30/i...blogs&_r=0

If it is just money that Elliot is after, i wonder what happens if we turn the table around and Argentina buys Elliot for exorbitant 10% AUM ie $2.5b

[Art or Science]

For sure Argentina is not faultless but one important info that most missed out is that Elliot bought the bonds on a SECONDARY market. They were not the lenders that lent to Argentina. There is a difference.

We have now 300 people taking 41 million people hostage over $1.5b personal interest that would snowball to potentially >$200b liability.

http://dealbook.nytimes.com/2014/07/30/i...blogs&_r=0

If it is just money that Elliot is after, i wonder what happens if we turn the table around and Argentina buys Elliot for exorbitant 10% AUM ie $2.5b

Agreed that Argentina is being held to ransom.

Judging from Argentina's reactions thus far, I doubt Argentina will hold its nose and do a deal with the hold-outs.

And thanks to Elliot, Argentina looks like a pariah again.. its economy is likely to remain starved of loans and investment, worsening its economy..

For VBs who are interested in reading more on this issue, below is a short write-up from Joseph E. Stiglitz. There are also other articles with different perspectives..

http://www.nytimes.com/roomfordebate/201...tructuring

[CityFarmer]

For sure Argentina is not faultless but one important info that most missed out is that Elliot bought the bonds on a SECONDARY market. They were not the lenders that lent to Argentina. There is a difference.

I would like to tell a little real story.

I had seen a debt dispute among acquaintances of mine.

One guy A had given a hand financially, to the other guy B when he had a cash flow issue in his company. The B defaulted on his repayment and claimed difficulties on company operation, and the repayment might put the employees' jobs and "life" at risk, etc. etc.

The A decided to call it a day, and took a haircut on the debt, by engaging a debt-collector. The B was very angry, and claimed "bullied" and "abused", and wanted to report police and took legal action, but talk-only-no-action.

Will the B liability to repay be any difference, after the debt-collector got the right from SECONDARY market? Will the B had a moral right to refuse repayment, due to the "bullies" and "abuses"?

It is a fact that, the repayment might jeopardize the jobs and life of B's employees, but the major blame went to the debt collector and A, rather to B?

Back to Argentina default, my empathy to Argentina people, and my best wish to their well-being amid the default. I do admit the hedgies are no mercy, no credit to them, but no major demerit point either.

[specuvestor]

In the past debt are not bearer form. If the banks lend you the money the banks know the risk they are taking IN THE LONG TERM to get the money back from you.

Then came disintermediation and securitisation. Many participants became short term focused.

In your example A knew the chances of getting back the money. In Argentina's case it is indicative that >90% of the lenders agreed to the refinancing.

Both the debt-collector and the vulture funds are opportunistic. It is a probabilistic game with little regards to the underlying. If they can recover debt from 1/5 of the bad debt they took, they will be ahead. And they will make all possible means to have a chance that this will be the 1/5, even much more motivated than the original lenders.

Food for thought. I don't think Argentina is blameless. But they had offered a restructuring plan that >90% think it is reasonable rather than outright refusal to pay, like say Russia

[CityFarmer]

In the past debt are not bearer form. If the banks lend you the money the banks know the risk they are taking IN THE LONG TERM to get the money back from you.

Then came disintermediation and securitisation. Many participants became short term focused.

In your example A knew the chances of getting back the money. In Argentina's case it is indicative that >90% of the lenders agreed to the refinancing.

Both the debt-collector and the vulture funds are opportunistic. It is a probabilistic game with little regards to the underlying. If they can recover debt from 1/5 of the bad debt they took, they will be ahead. And they will make all possible means to have a chance that this will be the 1/5, even much more motivated than the original lenders.

Food for thought. I don't think Argentina is blameless. But they had offered a restructuring plan that >90% think it is reasonable rather than outright refusal to pay, like say Russia

Valuable input to the topic. Thanks.

Well, We can't blame the fund disagreed to the plan, other than full payment, even as the minorities among the creditors.

In other words, we can't blame minority shareholder to block a SOA, even most of shareholders agree to it, right?

[tikam tikam]

In the past debt are not bearer form. If the banks lend you the money the banks know the risk they are taking IN THE LONG TERM to get the money back from you.

Then came disintermediation and securitisation. Many participants became short term focused.

In your example A knew the chances of getting back the money. In Argentina's case it is indicative that >90% of the lenders agreed to the refinancing.

Both the debt-collector and the vulture funds are opportunistic. It is a probabilistic game with little regards to the underlying. If they can recover debt from 1/5 of the bad debt they took, they will be ahead. And they will make all possible means to have a chance that this will be the 1/5, even much more motivated than the original lenders.

Food for thought. I don't think Argentina is blameless. But they had offered a restructuring plan that >90% think it is reasonable rather than outright refusal to pay, like say Russia

Valuable input to the topic. Thanks.

Well, We can't blame the fund disagreed to the plan, other than full payment, even as the minorities among the creditors.

In other words, we can't blame minority shareholder to block a SOA, even most of shareholders agree to it, right?

Well, then maybe find a way to put pressure on the vultures. (What do you mean you can't do it?)

[corydorus]

It should be similar to kind of "Enblock Plan" and things are above board.