Global vulture funds action will be restricted

Subject

Prospects for vulture fund activity.

Significance

As vulture fund activity expands, sovereign issuers, their legal and financial advisers and multilateral bodies are developing countervailing structures and mechanisms intended to thwart these activities. The UN has revived the idea of creating a sovereign bankruptcy framework, but this initiative lacks the backing of the United States and major EU countries.

Impacts

• Argentina, the DRC and Grenada each face ongoing holdout liability in US courts.
• Redrafted legal language may forestall some vulture strategies ahead, but older debt often lacks such clauses.
• Success in restricting holdouts would relax pressure on debtors to agree better restructuring terms, resulting in fewer holdouts.