MANHATTAN (CN) – Holdout creditors on Argentina’s restructuring plan for decade-old debts failed Thursday to win a contempt order against the Latin American nation that calls them “vulture” hedge funds.
U.S. District Judge Thomas Griesa did, however, use the hearing to decry what he called a “lawless” and “illegal” plan by Argentina’s president to skirt his jurisdiction through legislation aimed at sorting out the country’s debt obligations in Buenos Aires.
“It is illegal and cannot be carried out,” Griesa warned.
NML Capital, a Cayman Island-based hedge fund owned by Republican billionaire Peter Singer, and the Aurelius Capital Management fund are the lone “holdouts” that have refused to accept new bonds after Argentina defaulted amid social unrest and economic run in 2001.
Argentina and other critics of Singer have described his business model as a “vulture fund,” buying poor countries’ distressed debt for pennies on the dollar and then suing to enforce the original terms.
In 2005 and 2010, Argentina engaged in two restructuring plans that satisfied roughly 93 percent of the creditors, but NML and Aurelius refused to agree to those terms for the remainder.
Griesa previously blocked Argentina from following through on the restructured debts until it pays the more than $1.3 billion, including interest, it owes the hedge funds.
Though the United States government joined Argentina on appeal, warning in an amicus brief that the holdouts risked damaging foreign relations and the value of the dollar, the 2nd Circuit denied that the case would form a precedent because it found Argentina was a “uniquely recalcitrant debtor.”
In a continued souring of diplomatic relations, Argentina sued the United States in the International Court of Justice earlier this month for an alleged violation of sovereignty.
Argentina’s President Cristina Fernandez de Kirchner said Wednesday that she would seek legislative approval to pay the restructured debt beyond the reach of U.S. courts, and lawyers for the hedge funds responded within hours by filing a motion calling for an emergency hearing.
Robert Cohen, who represents NML for the firm Dechert LLP, told the judge Thursday that he should find Argentina in contempt “blatantly defiant actions.”
The 82-year-old judge replied: “How does a finding of contempt contribute to a settlement of this case?”
“The republic needs to feel that it has to settle,” Cohen replied. “Parties in litigation don’t usually settle unless they feel that it is necessary or in their best interests.”
Carmine Boccuzzi, representing Argentina as a partner in the New York-based firm Cleary Gottlieb Steen & Hamilton, said that “heated rhetoric” stood in the way of the negotiations that the judge said he wanted.
“A finding of contempt would be more gasoline on that fire,” Boccuzzi siad.
NML also is “not entitled” to a contempt finding “as a matter of law” because Kirchner’s proposal must still go through Argentina’s legislative process, Boccuzzi added.
While declining to issue a contempt order, Griesa called Kirchner’s proposal a “violation” of his orders and called for the parties to settle.
“In this case, it’s clear as can be that somehow, sometime and hopefully sooner rather than later there will be a settlement,” he said.
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