Moneyman Paul Singer is ramping up his high-stakes legal battle with the US Treasury Department over his huge Argentine debt position. (Reuters)
Elliott Capital Management’s Paul Singer must be sweating it.
After battling Argentina in the courts, Congress and the New York state legislature for years, he is pulling out a big gun in his bid to get $2 billion he says the South American country owes him.
Singer has enlisted the support of ex-Treasury vet Kenneth Dam, who served under Ronald Reagan and was deputy secretary of the Treasury under George W. Bush, to write a “friends of the court” brief for Elliott in a case the US Court of Appeals for the Second Circuit is slated to hear later this month.
The brief from Dam, also a prestigious University of Chicago Law professor, was clearly designed to counter the weight of one filed by the US Treasury, which has sided with Argentina, said Anna Gelpern, a sovereign debt expert and professor of law at American University Washington College of Law. Both briefs were filed last month.
It’s not the first time Treasury’s worries about the international repercussions of Elliott’s legal tactics have led it to take Argentina’s side. It also happened during the Bush II administration.
Elliott is one of the few creditors who refused to agree to Argentina’s demands to cut the value of its debt after the country defaulted in 2002. The hedge fund has won numerous judgments against the country to get every penny it is owed. But despite Elliott’s reputation for playing hardball, so far the fund has been unable to collect a dime.
In February, US District Court Justice Thomas Griesa, who has handed down many of the decisions in favor of Elliott, acknowledged he was frustrated with Argentina’s foot-dragging and ruled that the country must make payments to Elliott each time it pays the creditors who agreed to the restructuring.
The ruling rested on obscure language in sovereign bond documents that deal with equal rights of creditors. Elliott successfully used a similar argument years ago in a Brussels court over busted Peruvian debt it owned. The Belgian government later enacted legislation to make sure it never happened again.
If the appeals court upholds Griesa’s decision, it might force Argentina’s hand. But unless the court chooses a narrow interpretation, limiting its ruling specifically to Argentina, its decision could have serious consequences, experts said.
The US argues that Griesa’s ruling “could enable a single creditor to thwart the implementation of an internationally supported restructuring plan” and have “adverse consequences on . . . the stability of international markets and on the repayment of loans extended by international financial institutions.”
Dam counters there is a growing prevalence of so-called “collective action clauses” in sovereign debt instruments that allow a majority of creditors to bind the minority to the terms of a restructuring.
The recent Greek bond restructuring had such a clause, but holdouts — who are believed to be Elliott and Aurelius Capital, run by an Elliott alum who is also involved in the Argentina case — found a way around it by grabbing blocking positions in small bond issues sold outside of Greece.
As a result, debt experts say a minority of holdouts can still wreak havoc. “Imagine convincing creditors to go into a restructuring when the day after they will be asked by holdouts to hand over part of their payments,” Gelpern said.