Friday, August 01, 2014

Three Thoughts on Argentine’s Latest Default

Caveat: I claim no expertise on restructuring, so the reason that no one seems to be talking about the following may be that I am just dead wrong. Well. IMHO…

1. You have to hand it to those hedge-fund holdouts, they’re going to make a killing in any of the first six scenarios here and, eventually, most likely in the seventh as well. Which means…

2. Restructuring sovereign debt has become much, much harder. You cannot foreclose on sovereigns; that used to limit the leverage that small creditors could bring to bear on the other creditors in the hopes that they would be bought out by the big boys to complete the deal. Now, holdouts will have power over the rest of the creditors for the duration of the deal. Of course in future bailouts, creditors could drop the “Rights Upon Future Offers (RUFO)” clause. But that incentivizes every small creditor and hedge fund to hovering in waiting for windfall profits after the restructuring deal, making it that much harder to convince a sufficient portion of the creditors to take haircuts to make a worthwhile deal.

3. The Argentinian finance minister may not have an exit plan, but he sure rocks sideburns. Straight out of the fifties.

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