Here’s something which hasn’t got a lot of traction in the press: the World
Bank has just spent
$61 million on paying off a bunch of old Nicaraguan debt dating back to
the late 1970s and early 1980s. The amount works out at 4.5 cents on the dollar
on just over $1.3
billion in debt, mostly held by so-called vulture funds.
This is a good deal for all concerned. The vulture funds had judgments against
Nicaragua in foreign courts, which constrained Nicaragua’s ability to function
as a commercial entity. But at the same time it was increasingly clear that
Nicaragua was not about to spend its own money to settle these debts any time
I have a lot of sympathy for
vulture funds, but others might be shocked that they would settle for such
a small amount. In fact it’s not quite as puny as it looks at first blush: the
4.5 cents is calculated on principal and accrued interest, which adds up. If
you take the $61 million as a percentage of face value, it works out at closer
to 30 cents on the dollar.
Even that, however, is pretty low – my feeling is that the funds holding
this paper are going to end up with significantly less money than if they’d
just invested their cash in Treasury bonds.
The Nicaraguan debt has a long and torturous legal history: I reckon that if
you add up the legal fees on all sides spent litigating it in various courts
around the world, you’ll come to more than the $61 million the World Bank spent
to pay it off. So congratulations to everyone concerned in finally putting this
long-standing issue to bed, including the government of Nicaragua, the World
Bank, veteran emerging-market debt investor Hans Humes of Greylock Capital,
and venerable Cleary Gottlieb partner Roger Thomas. Let’s now hope that the
Argentine debt default doesn’t drag on for as long as this one did.