Vultures Forced To Hunt Elsewhere – The Changing World Of Distressed Debt

Distressed debt or special situation funds, otherwise known as vulture funds, are once again being scrutinised by the courts, the media and the legislature in many parts of the world.

These are private equity or hedge funds which invest in debt, often owned by sovereign states, which are, or are about to be, in default and which then take steps to affect recovery. If an individual company becomes insolvent, most countries have domestic laws which compulsorily apply an insolvency scheme to all creditors who then bear a proportionate part of the loss, subject to any security they might have. There is no equivalent global scheme which applies to debts owned by countries or sovereign states. Thus if one creditor, or its assign, invests the time and money to recover these sovereign debts, it does so in preference to the other creditors.