Constellation Tips Brady Plan for Subprime

Almost 20 years on from the Brady Plan and the landmark LatAm deal is again relevant. Shahriar Shahida, principal at hedge fund Constellation Capital Management, tells LatinFinance that something similar may be needed to sort out the US subprime mess. “A particularly interesting aspect of the Brady Plan was that it used an ingenious market based approach to solve an inordinately complex and diverse set of objectives on behalf of not only a disparate group of international banks but also, different countries with their own respective economic and political complexities,” says Shahida. “Moreover, it accomplished its goal by offering a menu of options that met the varied needs of the plethora of lenders involved in a relatively timely fashion.” The Brady Plan restructured over $160bn in LDC debt in a manner that led to sustainable debt service and recovery over time. Another historical model for addressing challenging restructurings would be the Home Owners’ Refinancing Act of 1933, which created the Home Owners’ Loan Corporation, adds Shahida. “The common denominator in both of these highly complex restructuring plans was that the authorities had the conviction that inaction would ultimately lead to significantly higher costs than action, and as such had the resolve to ensure success,” says the investor. Constellation has $720m under management, roughly a third in LatAm.