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By Far The Best Kenneth Dart Investment

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The Times tells us that Kenneth Dart – his family made their fortune supplying McDonald’s with styrofoam cups etc – has pumped a few billions into tobacco companies. Well, OK, but they also say this about him:

Dart’s history is as an activist investor in distressed debt.

Yes:

Dart also has a reputation as a “vulture investor” for buying up government debt, including in Argentina, and launching lawsuits, but he has a reclusive reputation among locals on the islands.

Ah, yes, but that’s to miss quite the most fun one.

So, Greece is going bust, it’s obvious that the bondholders are going to be forced into a cramdown. Debts that can’t be paid won’t be paid and all that. However, there’s a limit on how bad the haircut can be, the collective action clause. Depends on the bond – it applies to an issue, so the 2021 June 6% is a different issue from the 2021 July 5.9% and so on – but it might require 90% of bondholders, or 75%, or whatever, to agree to the deal. Hey, 60% of the old bond, or a different coupon, or a 50 year bond instead of a 5 year, is something rather than the nothing of bankruptcy, right?

Dart noted that some bond issue were under London law, most were under Greek. His bet was that the CAC would stand under London law and not under Greek. So, be bought a blocking minority – at least – in those London law bonds.

Lo and behold Greek law was changed so that all extant Greek law bonds had the blocking minority on Greek law bonds expanded. From 10% to 25%, or 25% to 50%, whatever it was. This made it vastly easier for the EU and Greece to impose a bloody awful haircut on those Greek law bonds.

The bet then becomes that the London courts aren’t going to allow the Greek Parliament to do this to London law bonds. If Dart owns that blocking minority then Greece must either declare the relevant bonds in default or pay them in full. At the time no one – well, so went the bet – was going to allow an EU and euro government to actually and really default even on a few bond issues. Cross-summatlegalword means that one bond in default all are.

Greek London law bonds paid out in full. Greek law Greek bonds were swapped for 30% – or so – of principal new bonds. Dart made out like a bandit.

And all because he spotted that when the law is determined outside the grasp of the legislature then property rights are safer.

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expunct (ɪkˈspʌŋkt)
VERB (transitive)
1. to delete or erase; blot out; obliterate
2. to wipe out or destroy

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