Some Hedge Funds Only Seem Like Pirates—This One Actually Stole a Ship

Date: Friday, October 5, 2012
Author: Tim Fernholz, The Atlantic

Let's say you own some debt from Argentina. The country defaults. But you still want to be paid in full. The solution? Hold one of their vessels for ransom, of course.
 

Wall Street cherishes the idea that it is far more important than any government. That's why we aren't surprised that a hedge fund has seized an Argentine naval vessel to recoup past loans.

A subsidiary of Elliott Capital Management seized the Libertad in a Ghanian port on Sept. 2, after it gained an injunction from a local court to hold the ship and its 200 crew members there. The fund is attempting to collect money it lost when Argentina restructured its debt after a $100 billion default in 2001, cutting payouts down to 30 cents on the dollar. The boat is a 100-meter long tall sailing ship, built in the 1950s as a training vessel for the Argentine nation and currently on a graduation tour for Naval cadets. It is valued at about  $10 to $15 million.

Elliott, led by billionaire founder Paul Singer, is one of a few lenders that have rejected Argentina's restructuring, demanding full payment and pursuing the matter through US and international legal venues, though the legal implications are far from cut-and-dried. The fund buys distressed bonds from financially troubled countries, like Argentina in 2001, and then attempts to collect in full when the nation recovers economically. Elliott popularized this strategy in the 1990s when it gained 400% returns on Peruvian government debt.

Apparently, the fund had been carefully watching the ship's course, waiting for an opportunity to stake a claim on it. If the country wants it back, it will have to pay a bond to the Ghanian court, which Elliott would reportedly cash in.

So-called "vulture" funds are already taking advantage of the opportunities provided by the European financial crisis, so today's action might be a preview of a not-to-distant future where financiers chase government assets--planes, ships, and in one unfortunate case, foreign aid-- around the globe, trying to shakedown dead-beat governments.