The holdouts are the creditors who refuse to participate in the restructuring of debt, i.e., an uncompromising, rigorous creditor. As such, it is a term used in the area of economics and finance. The word comes from English to hold out, which literally translates ‘stay out’ into Spanish.
Thus, as the name implies, the holdouts are kept out of the negotiation process for the repayment of a debt carried out, together with their creditors, an entity that is in a situation of cessation of payments or very close to it.
But why do they do it? The holdouts bought in the market, generally well below the original value, the debt of companies or states that are at the brink of bankruptcy or financial default.
And how does this happen? Well, when a country has economic problems that, in addition, threaten to sharpen, its bonds lose value and many bondholders, given the possibility of losing everything, run to sell them at whatever price. These types of situations are used by holdouts .
Then, during the process of restructuring a debt, where it is necessary for bondholders to accept a minimum percentage offered by the debt in default, the holdouts prefer to stay out.
What motivates them? Well, if in the terms and conditions stipulated for the creditors the right to refuse to accept the new conditions is contemplated, then the holdouts can claim or litigate the payment of the entire debt, which they bought at the balance price.
In this sense, holdouts are also known as vulture funds, a metaphor that associates them with birds of prey, inclined to invest in the public debt of an entity that is on the verge of bankruptcy.
Hence , it is considered the holdouts as speculators, who buy debt at very low prices, of countries whose economic situation is difficult, then try to collect all of the value of those bonds. Therefore, the practices of holdouts are considered dishonest and, even, in some laws, illegal.
Problems with holdouts have recently been registered in countries such as Argentina, Peru, Panama and Spain.