MANHATTAN (CN) – In a rare ruling from the bench Tuesday, the Second Circuit unbound Argentina’s economy from an injunction that prevented the republic from paying a $4.8 billion settlement in sovereign-debt relief.
Sovereign debt has been an albatross on Argentina’s neck since the South American republic defaulted on more than $80 billion in 2001.
Though Argentina hammered out restructuring deals in 2005 and 2010 that would have let it repay 91 percent of bondholders for pennies on the dollar, 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 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.
In the hedge funds’ case New York lawsuit, U.S. District Judge Thomas Griesa ultimately barred Argentina from paying any of the creditors until it could pay the holdouts.
He dissolved the injunction last month to help advance a $4.8 billion settlement Argentina reached, but the holdouts urged a Second Circuit in place Wednesday.
NML’s lawyer Matthew McGill said little has changed since “the bad old days.”
“Argentina’s problem hasn’t been forming agreements,” McGill said. “It’s been performing its agreements.”
Halfway through this morning’s hour-long hearing, it was apparent that the three-judge panel would affirm dissolution of the injunction.
“Is today crucial,” Judge Pierre Leval asked, “or is it just, ‘get it done quickly?'”
Argentina’s attorney didn’t skip a beat.
“Today would be great,” said attorney Paul Clement, a former U.S. solicitor general.
Clement assured the judges Griesa never meant for the injunction to be permanent.
“From the beginning, he knew that the injunction was not an end in and of itself,” Clement said.
Attorney Michael Shuster, who represents bondholders agreeing with the settlement, told the court that the deal benefits both the debtor and the creditor.
“Let this country rejoin modern financial society,” Shuster urged.
Since he took office this past December, Argentina President Mauricio Macri has been walking a political tightrope to implement the settlement.
Demonstrating commitment to the deal scorned by his predecessor, Cristina de Kirchner, Macri’s administration recently overturned a law meant to circumvent Griesa’s injunction.
The achievement over partisan obstruction earned mention at today’s hearing.
“I’m not sure that’s one even our president can pull off,” Shuster said.
Aurelius attorney Roy Englert tried using folksy humor to get his point across.
“Argentina has been making and breaking promises since 1827,” the lawyer said.
Peppering his argument with old chestnuts, Englert said, “Actions speak louder than words,” and that his clients have received “not one peso.”
But Judge Christopher Droney noted that Argentina had undergone what he called a political “sea change.” Droney read the ruling for the panel after a short recess.
“We hold the District Court did not abuse its discretion in finding that changed circumstances so altered the equities as to disfavor maintenance of the injunctions,” he said.
Droney said that the court would release a written opinion explaining its reasoning.
Despite victory for Argentina’s current administration, some of the country’s old allies remain concerned about the precedent set by its deal.
Jubilee USA, a Washington-based advocacy group for debt fairness, recently said that the deal facilitated today could reward bad hedge fund behavior.
“While Argentina can now return to the markets, the settlement validates a predatory and exploitative business model,” its director Eric LeCompte said in a statement on Feb. 29. “The parity rulings which favored these funds are still intact and we remain concerned how those rulings will impact some of the world’s poorest countries.”
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