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Friday, July 12, 2024 | Back issues
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Hedge Funds Lose Bid to |Keep Argentina in Debt

MANHATTAN (CN) - Argentina can finally escape court orders that have frustrated its efforts to repair the devastation wrought by its 2001 financial crisis, a federal judge ruled on Wednesday.

The South American republic stopped being about to pay more than $80 billion in sovereign debt 15 years ago, and it has struggled ever since to compensate the bondholders.

In 2005 and 2010, Argentina hammered out restructuring deals that would have allowed it to repay 91 percent of bondholders for pennies on the dollar, but a minority of holdouts refused to sign onto the deal.

These included New York-based hedge funds NML Capital and Aurelius Capital Management, owned by Republican billionaire Paul Singer.

Critics of the GOP power-broker, who is currently backing Marco Rubio in the presidential race, call his businesses "vulture funds" for buying out distressed debt of poverty-stricken nations and then suing for the full amount. He has also practiced this business model in Peru and the Congo.

More than 60 other companies and individuals joined the hedge funds in international litigation.

In 2012, Southern District of New York Judge Thomas Griesa invoked the doctrine of pari passu - Latin for "equal footing" - in injunctions barring Argentina from paying any of the bondholders until it had also paid the holdouts.

The orders were supposed to push Argentina to the negotiating table for a settlement, but the nation's former leftist government led by then-President Cristina de Kirchner refused to buckle to U.S. pressure.

After Argentines went to the polls late last year, constituents gave a mandate to their current center-right President Mauricio Macri to quickly put the case behind them to free up their nation's markets.

Within less than two months, the court's special master announced that Argentina reached a multibillion dollar settlement with its creditors, and Argentina asked the court to dissolve the former injunctions that kept it from executing its payments.

On Tuesday, Singer's hedge funds and other creditors urged Griesa to keep a 30-day window to keep the pressure on Argentina for further negotiations.

Griesa wasted little time before rejecting the hedge funds' request for delay.

"There is a pressing need for certainty and finality," he wrote in a 15-page ruling on Wednesday.

The 85-year-old jurist said that maintaining the status quo would send the wrong signal to Argentina as it tries to free itself of its old debts.

"The Argentine Congress must know where it stands, and all parties must act diligently to consummate these settlements," he wrote. "At least one agreement in principle with four major bondholders calls for payment by mid-April. The republic needs time to raise the capital required to pay all plaintiffs with whom it has reached agreement."

At the hearing on Tuesday, lawyers for the holdouts threatened to appeal Griesa's decision if he ruled against them.

Gibson, Dunn & Crutcher attorney Ted Olson, a lawyer for Singer's funds, told the judge that - to avoid an appellate battle - the court should "give peace a chance" through more negotiations.

Griesa declined to accept the purported olive branch.

"If some plaintiffs choose to appeal this order, that is their right," he wrote. "But appeals must happen promptly to ensure the certainty and finality needed for existing settlements to succeed."

Olson did not immediately respond to a request for comment left after business hours on his voice mail.

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