‘Vulture Fund’ Says Argentina Hasn’t Learned

MANHATTAN (CN) - Argentina is in flagrant violation of a court order to repay $724 million to an entity that bought its debts for pennies on the dollar, a federal complaint alleges.

The South American nation has used the term "vulture funds" to describe entities that it says took advantage of the absence of sovereign bankruptcy protection to sue for face value of the sovereign debt on which Argentina defaulted in 2001, in the face of a severe economic crisis.

U.S. District Judge Thomas Griesa found the South American country in contempt of court in September for not repaying the $1.3 billion it owes the funds.

While some of Argentina's creditors accepted a restructuring of their plans in 2005 and 2010, EM Corp. is among a group of holdout companies suing to enforce the original terms.

"For over a decade, Argentina has steadfastly refused to honor its international debt obligations to those creditors who, like EM, chose not to exchange their debt or judgments as part of the republic's restructuring efforts," EM's latest complaint filed Thursday states. "Instead, while Argentina has willfully ignored judgments duly issued by the U.S. courts, it has issued new bonds and made payments on those newly issued bonds in direct contravention of the Equal Treatment Provision."

Argentina President Cristina Fernandez de Kirchner in particular has "repeatedly refused to acknowledge or abide by the court's orders," EM alleges.

"Argentina has repeatedly vowed that it will never pay EM or any other non-tendering bondholders notwithstanding this court's orders," it adds.

A 2003 complaint EM filed landed it a $724 million judgment from Griesa, and the 2nd Circuit confirmed that award in 2004, according to the suit.

"In the nearly eleven years that have passed since the date of the judgment, Argentina has made no voluntary payment to EM in connection with the bonds at issue although Argentina has, and has had, more than sufficient assets and reserves to pay the judgment in full," the new complaint states. "Despite EM's dedication of considerable resources to locate Argentine assets, EM has been able to collect only a tiny fraction of its judgment after a decade of proceedings in this court and in other courts around the world."

Interest allegedly causes that amount to balloon to $835 million. "That amount will increase as additional interest accrues," the lawsuit points out.

NML Capital and Aurelius, two other holdout hedge funds, had asked Griesa in September to impose a daily fine of $50,000 against the country for nonpayment. The judge said he would determine any possible sanctions at a later date.

Griesa also took issue with Argentina's attempt to remove the Bank of New York Mellon as trustee of the bonds and replace it with an Argentine bank, which would put it under the purview of that country and side-step his orders.

He called the country's actions "illegal and cannot be carried out."

The current lawsuit accuses the republic of pressuring bondholders to accept the exchanges in 2005 and 2010, and that the Argentine legislators used "coercive" means to wriggle out of the deal. Those laws intended to prohibit the government "from negotiating or settling with any holder of defaulted debt that was eligible for the exchange but chose not to participate," EM claims.

Griesa had ruled that the bank must pay holdouts when it pays other bondholders.. On Sept. 26, the judge let Citigroup make a $5 million interest paying, and gave Argentina until this New Year's Even to make an additional payment of $262 million.

"Argentina has demonstrated through its actions and the repeated public statements of its highest government officials that it does not consider the judgments and orders of the US Courts to be binding on it," the lawsuit states. "Indeed, through the same officials, Argentina has characterized the orders of this court as 'malpractice.' In line with this position, Argentina has repeatedly promised never to pay the debt that it owes to the non-tendering bondholders."

In fact, the lawsuit states, President Kirschner even stated publicly that "not one dollar" was going to be paid to the "vulture funds."

Judge Griesa had said in August that Argentina officials' previous statements of its "willingness and desire to pay its debts" were "half truths" that were "false and misleading" and "must be stopped."

Argentina's president then submitted draft legislation to the country's Congress to rejigger the deal and allow payment to those who took the exchanges but not the hold-outs; it was passed in September.

EM says the law "demonstrates Argentina's intent and determination to continue making payments on the exchange bonds as they come due while paying nothing" to the hold-outs.

The court should issue a "mandatory injunction" that forces Argentina to comply with the court orders. EM is represented by Charles Platto.

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