Argentina, Elliott Renew Battle Over Defaulted Debt

Jul 24 2012 | 11:44am ET

Rebuffed last month by the Supreme Court, Elliott Associates took its decade-long battle with Argentina back to the lower courts yesterday.

The South American company and the New York hedge fund sparred before the Second Circuit Court of Appeals in Manhattan yesterday, the latter to protect a ruling that could be worth more than $1 billion, and the former to have that ruling junked. At issue is the so-called pari passu clause in the $80 billion in debt Argentina defaulted on in 2001, which provides that the country's obligations to pay those bonds "shall at all times rank at least equally with all of its other present and future unsecured and unsubordinated external indebtedness."

The only problem, Elliott argues, is that it hasn't been treated as such: Argentina is paying off bonds it issued later, as part of debt exchanges for the defaulted bonds, but it isn't paying on the defaulted bonds.

"We're entitled to equal treatment," Ted Olson, who represents Elliott's NML Capital, told the court. "We're not getting equal treatment."

Elliott and NML won that argument before a lower court. But that ruling on a "boilerplate clause is a nuclear weapon that gives them the right to veto a sovereign debt restructuring," Argentina's lawyer argued. And as with the Supreme Court case, the U.S. government is siding with Argentina, arguing that U.S. District Judge Thomas Griesa's ruling "could enable a single creditor to thwart the implementation of an internationally-supported restructuring plan, and thereby undermine the decades of effort the United States has expended to encourage a system of cooperative resolution of sovereign debt crises."

Argentina's lawyer, Jonathan Blackman, was more pointed: "Ninety-two percent of the debt holders recognized that the sensible thing to do was to take a haircut," he told the court. And, he added, even if Argentina were to lose the case, it couldn't pay anyway, since the precedent would cover more than the $1.4 billion sought by NML.

"Argentina cannot take 15% to 20% of its reserves to pay holdouts," Blackman said.

Olson said the $20 billion figure Blackman threw out was "new to me;" NML argued in its brief with the appeals court that Argentina, "a G-20 nation with more than $46 billion in unrestricted reserves, has ample resources to pay those 'nonperforming' obligations just as it now pays other obligations."


In Depth

Q&A: High Conviction, Low Correlation

Oct 30 2014 | 7:35am ET

Acadian Asset Management's numbers are big: over $70 billion in assets under management...

Lifestyle

Ex-Hedgie Steyer Gives $56M To Climate Action Super PAC

Oct 28 2014 | 9:23am ET

Retired Farallon Capital founder Tom Steyer has poured almost $56 million into his...

Guest Contributor

Hedge Funds Weather A Data Management Perfect Storm

Oct 22 2014 | 12:28pm ET

From a regulatory standpoint, nearly every development since the crisis has placed...

 

Videos

Editor's Note

    Guidelines for Guest Articles

    Oct 22 2014 | 9:46am ET

    We are always looking for guest articles from hedge fund managers and buy-side firms.

    If you are interested in submitting a contributed piece for possible publication on FINalternatives, please take a look at the specs. Read more…

 

Futures Magazine

October 2014 Cover

The yield curve and stock market response

Traders form habits quickly. Understanding these and their effects can better equip us to decipher actual market moves.

The Alpha Pages

TAP July/August 2014 Cover

The Alpha Pages Interview: Senator Rand Paul

Senator Paul sat down in the debut series of the Alpha Pages Interview to discuss the broken tax code, regulation surrounding Bitcoin, and his plans for the 2016 Presidential election.