A/HRC/41/51 (HIPCs), on the secondary market at a price far less than its face value and then attempt, through litigation, seizure of assets or political pressure, to seek repayment of the full face value of the debt together with interest, penalties and legal fees” (A/HRC/14/21, para. 8). 8. These commercial entities are not lenders, but private hedge funds that purchase on the secondary market (or collect from other bondholders) distressed debt at discounted prices and then sue the debtor for a much higher amount. They are popularly called “vultures” because of their modus operandi, whereby they: (a) Target States with distressed economies and a weak capacity for legal defence. According to the African Development Bank, 20 of the 36 poorest developing countries have been threatened or targeted by aggressive litigation by vulture funds since 1999. The World Bank estimates that more than one third of the countries that qualified for its debt relief initiative have been targeted by lawsuits by at least 38 litigating creditors, with judgments totalling $1 billion in 26 of those cases; 3 (b) Operate and take advantage of the lack of regulation of the secondary market. To obtain significant discounts, vulture funds acquire sovereign bonds when the indebted country is either close to default or has already defaulted on its debt. In the secondary market, they can operate with great secrecy in terms of both ownership and operations. Sovereign bonds are thus traded between investors without the debtor State concerned necessarily being aware or informed of such operations; 4 (c) Refuse systematically to participate in orderly debt restructuring processes. Once the State starts negotiations with private bondholders to restructure the sovereign debt, vulture funds exercise their “right” to hold out and/or start collecting and purchasing sovereign distressed bonds; they then wait until the country’s financial situation has improved to start negotiations for a better deal. In addition to difficulties in gaining access to the international capital markets again, the debtor State is under the threat of being subjected to a long and costly process with a particularly aggressive litigator. The additional pressure may easily prompt some Governments to accept highly disadvantageous deals;5 (d) Sue the country for reimbursement of the full value of the bond, plus interest and procedural costs. If the debtor State does not surrender to the claims of the vulture funds, then the next step in the strategy is to file legal claims seeking reimbursement of an amount much higher than the price they paid in the secondary market (usually the face value of the bonds), increased with interest, delay penalties and legal expenses. To ensure that they get a favourable court decision they make sure that “creditor-friendly” jurisdictions are involved in the resolution of the dispute. 6 The courts of debtor countries may increasingly become an option, as weaker legal systems are easily overwhelmed by the level of technical detail involved in this kind of litigation. Procedures are particularly protracted (on average six years), costly and burdensome (with annualized returns ranging 3 4 5 6 See African Development Bank Group, “Vulture funds in the sovereign debt context”, available from www.afdb.org/en/topics-and-sectors/initiatives-partnerships/african-legal-support-facility/vulturefunds-in-the-sovereign-debt-context/. Because big institutional investors do not like to sue sovereign States, they seek to obtain some return by selling their defaulted debt to vulture funds on the secondary market. See Devi Sookun, Stop Vulture Fund Lawsuits: a Handbook (London, Commonwealth Secretariat, 2010), p. 11. To force the targeted State to pay, vulture funds resort to lobbying and other pressure tactics, such as filing actions to attach assets and organizing press campaigns to discredit debtor States. See Romina Kupelian and María Sol Rivas, “Vulture Funds: the Lawsuit Against Argentina and the Challenge They Pose to the World Economy” (Centro de Economía y Finanzas para el Desarrollo de la Argentina, working paper No. 49, February 2014), p. 7. New York and London are the primary locations for external sovereign borrowing and related legal disputes. Over 70 per cent of international bonds are issued under New York State law, while most of the remainder are issued under English law. See Julian Schumacher, Christoph Trebesch and Henrik Enderlein, “Sovereign defaults in court”, CESifo working papers (February 2018), p. 1. 3