Vol. 40, No. 4 (Winter 2015)
The Virtue of Vultures: Distressed Debt Investors in the Sovereign Debt Market
Robert W. Kolb
In the international arena, ‘vulture investors’ acquire the distressed or defaulted debt of sovereign issuers and try to make a profit on that investment by suing the debtor to demand that it pay as originally promised. As the derogatory name attached to them shows, vultures have been widely disparaged as being greedy, harming poor nations and peoples, treating other bondholders unfairly, interfering with orderly sovereign debt restructurings, afflicting the sovereign debt market, and harming the society of the debtor nation, as well as the nation that hosts the sovereign debt market. This article describes the basic operation of vulture funds and the legal environment in which sovereign lending and borrowing proceed. It articulates the case against vulture investors, but proceeds to rebut each of the criticisms. Beyond mere rebuttal, however, the article makes an affirmative case for the value of vultures. More specifically, the article argues that, far from harming other actors, the activity of vulture investors actually helps other bondholders and makes the sovereign debt market function better than it otherwise would. In pursuing its profit opportunities, the vulture creates benefits for the society of the debtor nation and the country that houses the sovereign debt market.