It’s true. Argentina did default on bonds in the past. The 2002 default amounted to $95 billion, and that put Argentina in a very difficult economic position. The former President Cristina Fernández de Kirchner tried to squeeze the investors that held the bonds, and she managed to settle with about 92 percent of those hedge funds and private investors. But four hedge funds wanted full payment not the 30 cents on the dollar most creditors got. After all, Argentina is a rich country even though the country’s economic performance and their financial decisions were made at a pre-school level.
Highland Capital Management’s CEO James Dondero has been studying the Argentina situation for several years. Dondero is known for making good decisions when it comes to acquiring assets in emerging markets. Highland Capital has an office in Sao Paulo, so Dondero is very familiar with the South American business mentality. Dondero has managed to build Highland Capital into one of the most trusted investment firms in the United States. The Dallas-based Highland Capital has a whopping $19 billion in assets under management. And Dondero invested another $4 billion in Argentina debt in 2014.
Former President Cristina Fernández de Kirchner defied a U.S. court order in 2010, and that only exacerbated the country’s economic crisis. The people of Argentina finally saw the light and voted Mauricio Marci into office in November 2015. Dondero knew a change was coming. When Marci announced a new bond offering of more than $12 billion, Dondero jumped at the chance to invest more money in Argentina bonds because of the great return the company was getting on the $4 billion already invested.
Buying Argentina’s debts is not a low risk investment, according to Mr. Dondero. There is no guarantee that Marci won’t do what his predecessor did, but Dondero said the situation is different now. The United States has pledged its support, and the Chinese want to initiate a new trade agreement with Argentina in 2016. Marci has made important changes in the finance ministry, and he has also replaced the head of the country’s central bank. Marci is also meeting with labor and political leaders to establish common ground during the transition. A recent Bloomberg.com article also explained why Highland Capital and other investors are bullish on Marci and Argentina.