Billionaire Paul Singer’s costly, take-no-prisoners approach to Argentina is finally paying off.
A federal appeals court in New York handed Singer’s Elliott Management its biggest win yet in the hedge fund’s almost 10-year battle with the South American country over its 2001 default.
Elliott’s recent seizure of Argentina’s prized naval ship in Ghana — an embarrassing blow to the nation that aimed to get it to pay up — is a minor flap compared to the potential payday from this latest legal victory.
About a decade ago, Elliott began purchasing Argentine debt, refusing to go along with two debt swaps that paid other bondholders 25 to 29 cents on the dollar. Elliott is seeking to force the government to repay full face value, which could amount to over $2 billion.
On Friday, a unanimous three-judge panel ruled that Argentina must pay Elliott affiliate NML Capital in full every time it pays other bondholders who agreed to take a haircut. Argentine bonds sank on the decision, and the price of guaranteeing its debt against default skyrocketed on the ruling.
The country quickly vowed to take the case to the US Supreme Court, although there is no guarantee the higher court will hear it.
Should Elliott prevail, the ruling could have broader implications for the hedge fund’s business model of going after deadbeat governments.
“I’m glad that Elliott’s been able to hold Argentina accountable, but this is still not over,” said Hans Humes, a hedge fund manager who has been involved in several sovereign debt restructuring negotiations.
Elliott has likely spent tens of millions of dollars in legal fees fighting Argentina in the courts around the world, according to an individual close to the case. The firm has been awarded judgments against Argentina, but the country still refuses to pay.
A Ghana court was recently convinced by Elliott to take possession of one of the country’s military ships, the ARA Libertad, to help pay off one of its judgments. The ship remains in Ghana, but Argentina last week sent most of the crew members home and vowed to continue fighting. Still, the country, led by President Cristina Kirchner, fired the head of its navy over the debacle.
The frigate controversy will become moot if and when Elliott collects on Friday’s ruling, which was based on an obscure legal provision in bond contracts.
“An equal treatment provision in the bonds bars Argentina from discriminating against plaintiffs’ bonds in favor of bonds issued in connection with the restructurings,” said the ruling. The appeals court sent the case back to the district court to figure out exactly how that would be accomplished.
The latest ruling said $1.33 billion is at stake but additional court judgments and interest could bring Elliott’s total Argentina haul to more than $2 billion, according to sources. That is 10 percent of the firm’s $20 billion in capital. Elliott has told investors that Argentine debt is one of its biggest “non-performing debt” positions.
“I don’t know how much Elliott would have earned if they had gone into the exchange and not spent all the money on the lawyers’ fees,” said Anna Gelpern, a sovereign debt expert and law professor. “But now they have a business model if this sticks.”
Elliott declined to comment. Jonathan Blackman, the lawyer for Argentina, could not be reached.