Thursday, July 26, 2007

Vulture investor

What is vulture investor? If it is someone who "who buys up defaulted emerging market debt and presses authorities through various legal devices to press the country to pay more", then I think he or she is smart and the blame should go instead to the lousy legal system in the 'victim'(?) country.

Does the term also apply to business to business (b2b, as opposed to b2g)? I don't know. But even if it does, why should a vulture investor be condemned? I don't get it.


anymatters said...

It starts from a cheap purchased debt, say costs 1% which pays 15% interest, so 14% total income if not default. Then, to cover it, the vulturist pays the gummint 7% premium as the gummint promises to pay principal and interest to the vulturist (1 + 14%) if default and the debt is overhandled to the gummint. If not default, the gummint will get 7% from the premium and the vulturist will get 7% (interest - premium). Everyone's happy. No need to condemn anyone.

Aco said...

Thanks for this, Anymatters. I should've trusted my gut feeling: vulture investors are good people.