Vulture Funds

Vulture funds are companies specialized in the acquisition of debt for a fraction of its original value, that later demands full repayment of the debt. Vulture funds possess the resources to file lawsuits and fight in court against indebted countries to make them repay old loans. The vulture funds’ business conduct is perceived as worrisome by the debt relief movement, the IMF and several national governments, as vulture funds threatens the effect of debt relief for indebted countries.

A famous example of a vulture fund’s business conduct is NML Capital’s lawsuit against Argentina. Argentina received debt restructuring in the early 2000s, but only 93% of the creditors approved the debt relief deal that would reduce the country’s debt to 25-30% of its original value. The remaining 7% of the debt was acquired by a vulture fund, who won a trial in an American court of law 2013. The sentence stated that NLM Capital should receive payback in full for the debt they acquired for a fraction of its original value. In July 2014, the sentence created huge problems for Argentina, since the country no longer was able to pay their other creditors through the American banking system. The case of Argentina has drawn international attention to the problems of vulture funds.

Over the last years, several countries have adopted legislation to stop vulture funds or other creditors from making money on debt acquired for a fraction of its value by refusing to contribute in a debt restructuring process. In 2010, the British parliament adopted a law that stops vulture funds or other creditors from suing any of the 40 countries qualifying for debt relief through the HIPC-initiative. In 2015, the Belgian parliament stopped companies from filing lawsuits to get repaid a greater amount than what they acquired the debt for, if they met a set of criteria showing they were doing this trying to make a wrongful profit. France is the latest country to adopt these kind of measures, adopting a law in 2017 that protects developing countries from having values impounded by creditors who acquired the country’s debt when the country was in – or close to – default, if the default happened less than four years ago, or if at least to thirds of the creditors have accepted a debt restructuring.