Argentina angry at hedge fund court win

Neither a borrower nor a lender be, For loan oft loses both itself and friend

By Robin Wigglesworth and Jude Webber

Argentina has angrily criticised a US court decision that has awarded hedge fund creditors more than $1.3bn as “a kind of legal colonialism”.

“All we need now is for [Judge Thomas] Griesa to send us the Fifth Fleet,” Hernán Lorenzino, economy minister, said.

The victory for several hedge funds against Argentina has sparked fears that the country could be plunged into yet another debilitating sovereign default and threatens to make government restructurings more difficult in the future.

In what has been dubbed the “trial of the century” for sovereign debt restructurings, a US District Court judge on Wednesday ordered Argentina to pay the hedge fund creditors – led by Elliott Associates and Aurelius Capital – in mid-December.

Unlike the vast majority of Argentina’s creditors, Elliott Associates and Aurelius Capital did not accept two tough debt swaps in 2005 and 2010, choosing instead to pursue full repayment through the courts.

Buenos Aires could choose to default rather than repay the hedge funds it considers “vultures”, in a case that experts say has far-reaching ramifications for international finance.

Whitney Debevoise, a lawyer at Arnold & Porter and former US executive director at the World Bank, warned that making it easier for lenders to sue recalcitrant countries could complicate future debt restructurings.

“Restructuring deals like Greece would have been much harder if ‘holdouts’ had much better rights,” he said.

Argentina will on Monday file an appeal seeking to “refute each and every one of the points in Griesa’s ruling”, Mr Lorenzino said.

He said bondholders that had agreed to the restructuring felt “hostage” to the ruling, adding that it defied common sense that they should have to wait more than 30 years to receive reduced payment on restructured bonds when the holdouts got paid in full.

Although the judge said his was a “just result”, Mr Lorenzino said it was “illegal in terms of our law”.

Claudio Lozano, an opposition deputy and economist, added the ruling was unacceptable and said: “We would have to reopen talks with the rest of the creditors . . . That would be real madness.”

One bondholder group led by Gramercy, a hedge fund, said it was preparing “an immediate appeal and motion to stay this ruling”.

“Given [the judge’s] obvious frustration with Argentina we expected this ruling,” said Sean O’Shea, a lawyer for Gramercy. “What we did not expect was the disregard of innocent exchange bondholders’ due process rights.”

The decision still has to be confirmed by the appeals court and could end up before the US Supreme Court. But if upheld, it would open a chink in the armour of sovereign immunity against creditors that countries have largely enjoyed for the past century.

“This is big stuff,” said Charles Blitzer, a former International Monetary Fund official who has worked on several sovereign restructurings. “This is a partial clawback of creditor rights, which I personally think was overdue.”

Argentine bond prices slid on Thursday as investors took fright at the ramifications of the ruling.

“The judge is killing all the people who signed up to the restructuring,” said a European investor. “For a New York judge to tell Argentina a decade on that it has to fully pay the holdouts is unreasonable, to put it mildly.”

The case could also have implications for the International Monetary Fund and World Bank’s protected status in restructurings.

“That’s the next shoe to drop,” Mr Debevoise said. “If this ruling stands it will have big implications for the official sector.”