Paul Singer’s Elliott Associates and a handful of other holdouts scored a near-total victory over the Republic of Argentina as that country agreed to pay $4.75 billion — three-quarters of what they were owed — to settle claims over defaulted government bonds.
The settlement represents the price Argentina had to pay to re-enter world credit markets after losing a pivotal appeal to the U.S. Supreme Court in 2014. And it could increase confidence in other emerging-market debt as investors begin to reassess the ability and willingness of countries to pay interest on their beaten-down bonds.
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Just over three years ago, New York-based hedge funds tried to seize an Argentinean naval ship, but their high-powered lawyer quoted John Lennon’s pacifist ballad on Tuesday in a hearing over the fate of a $4.6 billion settlement.
“What we’re saying is, ‘Give peace a chance, ‘ so to speak, ” attorney Ted Olson of the firm Gibson, Dunn & Crutcher told a federal judge Tuesday.
Olson represents financial institutions that former Argentine President Cristina de Kirchner’s administration labeled “vultures” for gobbling up poor nations’ debt for pennies on the dollar and then suing for the full amount.
Ironically, if Olson’s clients win their latest argument, the so-called “peace” they seek could derail a settlement meant to end 15 years of international litigation.
NML Capital and Aurelius Capital Management, owned by Republican billionaire Paul Singer, represent roughly 7 percent of bondholders refusing Argentina’s restructuring terms for debt the nation accrued during its 2001 financial crisis.
Singer, a major backer of Cuban-American presidential candidate Marco Rubio, has practiced a similar business model throughout Latin America and Africa, including Peru and Congo.
Starting in Manhattan Federal Court a decade ago, the hedge funds and about 60 other creditors launched international efforts seeking compensation for the bonds.
The bondholders found an ally in U.S. District Judge Thomas Griesa, who barred Argentina from paying any of its creditors until compensating the holdouts under the legal principle of pari passu, Latin for “equal footing.”
Griesa’s injunctions hamstrung Argentina’s economy for years in an effort to force the country to the negotiating table for a settlement, but the former leftist government refused to buckle to the U.S. court’s pressure.
In December, Argentinean citizens elected center-right President Mauricio Marcri, who vowed to end the country’s 15-year-old debt woes.
The leader of Argentina’s negotiations with its creditors announced an end in sight on Monday, releasing the broad terms of all-encompassing deal with dozens of creditors.
“The parties last night signed an agreement in principle after three months of intense, around-the-clock negotiations under my supervision, ” the court’s special master Daniel Pollack wrote in a statement Monday.
While celebrating this “giant step forward, ” Pollack cautioned that the settlement is “not the final step.”
Argentina’s legislature must approve the deal, which would require the Latin American nation to revoke two laws – the Lock Law and the Sovereign Payment Law – enacted by the prior administration to bar the settlement.
Griesa already signaled his willingness to dissolve his earlier injunctions in a so-called “indicative ruling” that he filed on Feb. 19.
“Vacating the injunctions serves the public interest by encouraging settlement to resolve disputes generally – particularly such protracted ones – as well as the concern for finality in this particular litigation, ” the judge wrote at the time.
On Tuesday, Argentina’s lawyer Michael Paskin urged Griesa to do so immediately to breed confidence in the country’s legislature and markets.
“If there is not certainty over the impact of your honor’s ruling…then it becomes much harder to implement the required changes, ” Paskin said.
Several of Argentina’s bondholders support lifting the injunctions, but there are those who continue to push for a 30-day delay that would spell further negotiations, including Singer’s hedge funds.
“There are some parties here who want to snatch still more litigation from the jaws of settlement, ” Michael Shuster, an attorney for three of the creditors, said.
Those parties include Singer’s hedge funds, which represent 65 percent of the creditors, and another block of creditors which included Argentinean citizens encouraged to buy bonds for patriotic reasons before the debt-crisis struck.
Olson, on behalf of the hedge funds, called a delay necessary to see if Argentina follows through on its obligations under the settlement, and to appease 15 percent of the other creditors contend that they were left out of the negotiations.
If Griesa dissolves his original injunctions, the decision will likely be appealed to the Second Circuit.
When Olson spoke of his desire for “peace, ” he meant that Griesa should keep the heat up on Argentina until all of the creditors are satisfied.
“Precipitous action now could jeopardize the settlement and precipitate more litigation, ” he said.
After roughly 90 minutes of wrangling, Griesa left the fate of the longstanding litigation on a cliffhanger.
“Let me just say: This has been a remarkable afternoon, ” he said, before reserving decision.
This story was first published at Court House News, by ADAM KLASFELD
