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NML Capital vs. Argentina

The "'trial of the century' in sovereign debt restructuring" - Financial Times

BACKGROUND: In 2001, when Argentina defaulted on roughly $81 billion, NML Capital, a hedge fund that is a subsidiary of Paul Singer's Elliott Capital Management, purchased some of Argentina's debt on a secondary market at a discounted price. After Argentina defaulted, 92 percent of its creditors restructured in 2005 and 2010 for roughly $.30 on the dollar. Led by NML Capital, holdout creditors (including other hedge funds), rejected the proposal and sued Argentina for the full amount in New York State courts.

NML Capital is a type of hedge fund often referred to as "vulture funds." Vulture funds buy the debt of poor countries or countries in financial recovery for pennies on the dollar and then sue to make upwards of a 1700% profit. Jubilee USA Network introduced bipartisan US legislation in 2009 to stop vulture funds from making large profits off of poor countries.  Similar legislation passed in the United Kingdom, Belgium, the Jersey Isles and the Isle of Man. The International Monetary Fund and World Bank have noted that this kind of behavior threatens financial recovery and debt restructuring efforts in fragile economies.

In November 2012, a US Second District Court judge ordered Argentina to pay NML Capital and other hold-outs in full (roughly $1.33 billion). The court based its decision on a legal concept known as pari passu, arguing that Argentina could not pay its restructured bondholders without also paying the hold-outs. Argentina appealed the decision all the way to the Supreme Court, which on June 16, 2014, declined to hear the case. At the appeals court level, the United States government filed a friend-of-the-court brief on behalf of Argentina. At the Supreme Court, France, Mexico, Brazil and Jubilee USA filed briefs on behalf of Argentina.

Currently, Argentina is negotiating with the hold-out creditors through a court appointed mediator. If the two sides do not reach an agreement by July 30, Argentina will be faced with a series of difficult choices, including a potential debt default.

Case Timeline:


August 7 - Argentina sues the United States at the International Court of Justice.

July 30 - Negotiations with hold-out creditors fail and Argentina defaults on its debt for the second time in 13 years.

July 29 - Argentina is hours from default as last-minute negotiations continue in New York. Meanwhile, Grenada and the Democratic Republic of the Congo face related litigation in US courts in cases that could be impacted by the Supreme Court's decision.

July 22 - US District Judge Thomas Griesa orders Argentina and hold-out creditors to meet with a court-appointed mediator and negotiate "continuously." Argentina is facing a July 30 deadline to reach agreement or default for the second time in thirteen years. Griesa rejected Argentina's request for a stay in the case.

July 11 - Argentina resumes negotiations with the court appointed mediator in New York. Argentina's cabinet chief Jorge Capitanich says Argentina will devise a solution to the situation and will not default.

July 7 - Argentina's Economy Minister Axel Kicillof meets with court appointed mediator Daniel Pollack and asks the court to stay its ruling. Kicillof says Argentina needs more time to negotiate.

June 27 - Argentina attempts to pay its restructured bond holders but a US judge blocks the payment. Argentina had deposited more than $500 million in the Bank of New York Mellon, but Judge Thomas Griesa ordered the payment blocked unless Argentina also pays the hold-out creditors. Read the full story in The Guardian

June 18 - Argentina's lawyers tell a US District Judge that the country will negotiate with the hold-out creditors to try to reach an agreement. Argentina has until July 30 to settle the dispute. If no settlement is reached, Argentina would then need to pay the hold-out creditors and be faced with potential lawsuits from all of its other creditors seeking full repayment. If it chose not to pay the hold-outs, it would be in technical default. Read the full story in Bloomberg Businessweek

June 17 - Argentina announces a plan to continue paying creditors that accepted a restructuring deal after Argentina's default without paying hold-out creditors.

June 16 - The Supreme Court rejects Argentina's appeal for a hearing in the case. The decision will impact debt restructurings, poor country access to credit and propel predatory behavior. The Court also rules against Argentina in a related case involving the ability of hold-out creditors to locate the foreign assets of the sovereign nations they are suing. Read the full story in The Washington Post

June 12 - The Supreme Court meets to decide whether or not it will hear the case. Jubilee USA's press release notes the impact of the case on the poor and lays out the most likely scenarios for how the court might proceed. The IMF also weighs in on the case again, expressing "deep concern" for the impact of the case on the debt relief process.

May 27 - Argentina files its final arguments to the Supreme Court in the case, which now rests in the hands of the nine justices. 

March 24 - Jubilee USA and nearly 80 faith and development partners file an amicus brief with the US Supreme Court in the Argentina/NML capital case. The brief argues that a court ruling in favor of the hedge funds would harm US bipartisan debt policy, global financial stability, and the world's poorest people.

February 18 - Argentina officially files its appeal to the US Supreme Court, which will then decide whether or not to hear the case.  Read more in Jubilee USA's press release in anticipation of Argentina's filing and its statement at the time of the filing. Jubilee Executive Director Eric LeCompte is interviewed about the case by the Wall Street Journal.

January 10 - The US Supreme Court agrees to hear Argentina's appeal in a related case involving foreign assets. This case would decide whether or not creditors have the right to receive information related to a country's foreign assets from financial institutions, and the high court's ruling will have a big impact on the ability of predatory hedge funds to target such assets in the future. Read more in Jubilee USA's press release. The Supreme Court's decision is covered in the Wall Street Journal, the Financial Times, and the Washington Post.


December 6 - The US government files a brief with the high court in support of Argentina's appeal in the related assets case. The US government's decision is covered by Reuters.

November 18 - The US 2nd Circuit rules in favor of NML Capital, a decision Argentina would proceed to appeal to the US Supreme Court. Read Jubilee Director Eric LeCompte's statement.

November 1 - A US Appeals Court rejects the vulture funds' request to remove a hold on payments in the landmark debt case. Read more in Jubilee USA's statement.

October 7 - The US Supreme Court decides not to take the landmark debt case between Argentina and bondholders led by NML Capital. Argentina proceeds to file a second petition in the coming months that the Supreme Court reviews and eventually rejects. Read Jubilee USA's statements.

August 23 - The US Circuit Court upholds a previous ruling ordering Argentina to pay $1.33 billion to hold-out hedge funds. The 2nd Circuit Court delays implementation of the ruling until the US Supreme Court decides if they will hear Argentina's appeal of the circuit court ruling.

July 26 - France files an amicus brief to the US Supreme Court in support of Argentina's request. The IMF planned a similar US Supreme Court filing because of the case's significant implications on poverty and country debt restructurings. Although the Fund's Managing Director Christine Lagarde has expressed concern about these hedge funds' behavior, the IMF eventually chose not to file in the case.

July 11 - German courts side with Argentina and reject similar hedge fund claims to those made by NML Capital against Argentine assets in Germany.

June 24 - Argentina files an appeal to the US Supreme Court, known as a writ of certiorari, to ask the court to overturn a ruling by the 2nd US Circuit Court of Appeals made in October of 2012. This previous ruling ordered Argentina to pay holdout creditors in full.

May 23 - The IMF weighs in on the case saying that the result would have major implications for how future sovereign debt is restructured.  

April 19 - NML Capital rejects Argentina's proposed payment plan, which it had made in response to an order by the US Second Circuit Court of Appeals. Jubilee USA release a statement on Argentina's payment plan.

February 27 - US Second Circuit Court of Appeals judges hear Argentina's appeal of the 2nd District ruling. Jubilee USA Network's Executive Director, Eric LeCompte, observes the hearing and releases this statement on the outcome.

"If the judges rule in favor of these hedge funds, it will mean these funds will more aggressively target poor countries in fragile financial recovery.  If they rule with Argentina, it will mean that it will be harder for these types of funds to exploit countries in financial distress.  The actions of NML Capital and Aurelius Capital hurt legitimate investors and poor people." - Eric LeCompte, Jubilee USA Network's Executive Director

The court proceeds to ask Argentina to propose an alternative payment plan. Argentina's plan (rejected by NML Capital) would essentially give holdout creditors the same deal that 92 percent of creditors took. 


November 21 - The US 2nd Circuit Court orders Argentina to pay holdout creditors $1.3 billion on December 15, 2012, the same date Argentina is set to pay creditors that restructured, upon its interpretation of a pari passu or parity clause. The court's order, and NML Capital's argument, is that if Argentina pays back one creditor, it has to pay back all of its creditors, including ones that did not restructure.  Since Argentina has already begun to repay the 92 percent of creditors that restructured, NML Capital is arguing that it should be paid back as well, and in full. Pari passu has been used by NML Capital to litigate in other similar situations in which it purchased debt on the secondary market, the most notable case being Peru.

In the wake of this ruling, the appeals court freezes the payout to hear new arguments on the case in the 2nd US Circuit Court of Appeals in New York on February 27, 2013. The US Government files a friend-of-the-court brief noting a ruling against Argentina could make it much harder for countries in financial recovery or countries facing economic stresses to access credit and debt swaps.

October 4 - In an effort to collect on the debt it claims it is owed by Argentina, NML Capital asks a Ghanaian court to seize one of Argentina's ships, the ADA Libertad, that was parked off the coast of Ghana.  NML Capital wins the case and Ghana seizes the ship.  Later, the ruling is overturned by the United Nations Tribunal on the Laws of the Sea and the ship is returned to Argentina. On June 21, 2013, Ghana's supreme court condemns the Argentine ship seizure.

June 22 - Elliott Management supports legislation in the New York State Senate and Assembly that would allow the fund to pursue post-court judgment. Jubilee USA Network, along with its partners at American Jewish World Service, rally against the legislation and mobilize 4,000 supporters in New York State to write their state legislators and meet with legislators about the legislation.  The legislation did not make it to a vote when the New York State Senate and Assembly ended their session.

Further Reading:

  • The opening brief and reply brief for the pari passu appeal on February 27, 2013
  • The United States' amicus brief in support of the Republic's petition for rehearing of the Second Circuit's October 2012 decision
  • On May 23, 2013, the IMF weighed in on the Argentina v. NML Capital case saying that the result would have major implications for how future sovereign debt is restructured.  Read the IMF's statement here.

Learn more about vulture funds.

Member of the press?  Go to Jubilee USA's press room for releases and notable press mentions around the case.

Ramifications for Other Debtors and Bondholders

Sovereign Debtors: 

- If affirmed, the orders on appeal with strengthen the hand of professional holdout creditors such as Elliott Associates while making it much harder for poor nations to emerge from financial crises. 

- The only way countries can rebound from financial turmoil is through voluntary debt restructurings.  But the court orders here would undo that mechanism by allowing holdout creditors like Elliott who reject debt restructurings to block payments to restructured bondholders unless holdouts are paid in full on their defaulted debt.   

- This would not only would destroy debt restructurings that are necessary for the economic health of nations, but would also prevent other poor countries from restructuring their debt in the future because creditors will not want to restructure if there is a chance that their payments will be disrupted by holdouts who get paid in full.   

- As the United States observed in the current appeal, the effect of the orders at issue has the potential to extend well beyond Argentina because creditor litigation has increased significantly in the past decade, and has adversely affected low-income countries such as Liberia and Zambia. 

- The orders may also weaken the ability of poor nations to raise capital because the market will price-in the increased lending risk, which could cause some countries to not be able to obtain any lending at all. This would be disastrous for those nations because they depend on credit to grow and to develop. 

Other Bondholders: 

- The orders here give a preference to a minority of holdout creditors like Elliott at the expense of the majority of creditors who agreed to give relief to a sovereign facing economic difficulties. 

- Elliott -- followed by various other holdout creditors -- is now seeking to prevent the vast majority of restructured bondholders from receiving payments on their discounted debt, unless they are paid in full.  The harm to the bondholders who restructured their debt consistent with IMF and U.S. policy is patent: their property rights are interfered with by Elliott -- a third party to whom the restructured debt holders have done no harm.   

- If this type of relief becomes the law, bondholders who restructure their debt -- a group that consists of numerous individuals and pension funds -- could be deprived of payments on their bonds, thus resulting in economic hardship to many people. 

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