The Debt “Trial of the Century” – Vulture Hedge Funds v. Argentina

Yesterday, two holdout vulture funds, including Paul Singer’s NML Capital, were in a New York Federal court versus Argentina. The Financial Times has dubbed the proceeding the “‘the trial of the century’ in sovereign debt restructuring.” After the hearing, judges at the 2nd U.S. Circuit Court of Appeals said that will issue their ruling in the coming weeks.

Jubilee USA Network is bringing attention to the effect that this case could have on poor countries: “If these vulture hedge funds win, it will mean they will more aggressively target poor countries in fragile financial recovery. If we win, it will mean that it will be harder for vulture funds to target the monies that develop social infrastructure in many poor countries,” said Eric LeCompte, Jubilee USA Network’s Executive Director.

The faith community and other groups, organized by Jubilee USA, held avigil in concern for poor people affected by vulture funds during the proceeding outside the hearing. Vigils also took place in London and Buenos Aires.

In 2001, when Argentina defaulted on roughly $81 billion, NML Capital purchased some of Argentina’s debt on a secondary market. When Argentina defaulted, they restructured with some of their creditors in 2005 and 2010 but holdout creditors, led by NML Capital, rejected the proposal and sued Argentina for the full amount in NY courts – thus, naming NML Capital a holdout vulture fund. Vulture funds buy the debt of poor countries or countries in financial recovery for pennies on the dollar and then sue to make as much as a 400% profit off the backs of the poor. Jubilee USA Network introduced bipartisan legislation in 2009 to stop vulture funds from making a profit off of poor countries.

The US Government filed a friend-of-the-court brief noting a ruling against Argentina could make it much harder for countries in financial recovery or countries facing economic stresses to access credit and

debt swaps. The International Monetary Fund and World Bank assert that vulture funds negatively impact debt relief and restructuring efforts in poor countries.

“Vulture funds hurt both legitimate investors and poor people. That’s why the US government got involved, that’s why the IMF and World Bank are against vulture funds,” stated LeCompte.

In June, these same vulture funds supported legislation in the New York State Senate and Assembly which would have allowed the funds to continue to litigate even after post-court judgment. Jubilee USA

Network came out against the legislation by mobilizing 4,000 supporters in NY to write, e-mail and call their State Assembly and Senate Members. With American Jewish World Service, Jubilee USA put enough pressure on the New York legislative bodies to stop the legislation from coming to a vote.

In October, the vulture funds were able to convince Ghanaian Courts to temporarily seize an Argentine ship. The ship was eventually returned to Argentina. Then this past November, the vulture funds made a pari passu or parity argument in the US District Court and the court ruled in favor of the vulture holdout creditors. Argentina was ordered to pay $1.3 billion on December 15, the same date they were to pay the creditors that had restructured. The federal appeals court froze the payout and heard new arguments yesterday in the 2nd U.S. Circuit Court of Appeals in New York. A ruling is expected in the coming weeks.

“We pray that they will side with the people of Argentina, the US Government and the world’s poorest people,” said Eric LeCompte, Jubilee USA Network Executive Director.