Argentina loses New York court case, owes vulture fund $1.3bn

Elliott Capital Management must now be paid at the same time Argentina pays its normal bondholders.

Fresh off its success in seizing a 100m-long tall ship owned by the Argentine navy from a Ghanaian port, Elliott Capital Management – the biggest and boldest of Argentina's "vulture funds" – has secured what looks like a final victory over the country in the New York courts. Argentina is now caught in the unenviable position of either paying back debt which it thought it had defaulted on a decade ago (and which Argentine president Cristina Kirchner has sworn not to do), or default on entirely new debt, which it has both the will and the funds to stay current on.

The problem Elliott has had is that Argentina, as a sovereign nation, can't be bound by any court judgement. Once it decides not to pay up on bonds – as it did when it defaulted on its debt in late 2001 – there is very little its creditors can do.

As a result, after the default, the value of the bonds plummeted well below face value. Most creditors were happy to swap the defaulted bonds for new, lower-value ones, which ensured they at least got something, but some – like Elliott – decided to hold out for the full payment.

Elliott had pursued a nuisance strategy – seizing Argentine assets which had ended up under other nations' jurisdiction, like the sailing ship ARA Libertad – but at the same time, the hedge fund, which now holds bonds with a face value of well over $1bn, has been attempting to force the country to pay up on the total amount.

Faced with an inability to directly affect Argentina's actions, the fund has instead gone after an organisation it whose hand it can force: the Bank of New York. The bank is responsible for issuing Argentina's present-day debt, issued since the default. The judgement Elliott has won forces BoNY to pay them with the money Argentina hands over to pay its bondholders.

This is legally problematic at two levels. In the specific case, it means that BoNY and Argentina's current bondholders are being penalised for a case which they have nothing to do with. BoNY in particular is caught in a bind – either it breaks its legal obligations to the court, or to its bondholders. And the bondholders are doubly screwed. If Argentina doesn't pay the holdouts – and Argentina has a thing about not paying holdouts – then money which they are legally owed, and which Argentina is legally trying to get to them, will instead go to Elliott (and presumably other holdouts who will follow a similar route in court).

And in general, it's a worrying precedent for future sovereigns hoping to restructure their debt. There is no bankruptcy procedure for nations, but it is still perfectly possible for their debt to pile up to such an extent that they – and possibly their creditors, in aggregate – would be better off restructuring it. That just got slightly more difficult. If the precedent stands, then any sovereign holding bonds administered through the US can expect to have to pay them off, in full, no matter what their finances are. (Greece, are you listening?)

All of which means that we can probably expect Argentina to take the only other route open to it: default – again – and offer new bonds at face value, but issued under Argentine law. Bondholders shouldn't lose too much money, but they will lose a lot of security (if, that is, they haven't already). Argentina's reputation, slowly rebuilding after the initial default, will take another hit. And Elliott – which holds a lot of insurance against an Argentine default – will actually make quite a lot of money. Which makes the whole thing seem rather counter-productive on Argentina's part.

The ARA Libertad, the ship seized in Ghana. Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

Photo: Getty
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Paul Nuttall is like his party: sad, desperate and finished

The party hope if they can survive until March 2019, they will grow strong off disillusionment with Brexit. They may not make it until then. 

It’s a measure of how far Ukip have fallen that while Theresa May faced a grilling over her social care U-Turn and Jeremy Corbyn was called to account over his past, the opening sections of Andrew Neill’s interview with Paul Nuttall was about the question of whether or not his party has a future.

The blunt truth is that Ukip faces a battering in this election. They will be blown away in the seats they have put up a candidate in and have pre-emptively retreated from numerous contests across the country.

A party whose leader in Wales once said that climate change was “ridiculous” is now the victim of climate change itself. With Britain heading out of the European Union and Theresa May in Downing Street, it’s difficult to work out what the pressing question in public life to which Ukip is the answer.

Their quest for relevance isn’t helped by Paul Nuttall, who at times tonight cast an unwittingly comic figure. Pressing his case for Ukip’s burka ban, he said earnestly: “For [CCTV] to work, you have to see people’s faces.” It was if he had intended to pick up Nigel Farage’s old dogwhistle and instead put a kazoo to his lips.

Remarks that are, written down, offensive, just carried a stench of desperation. Nuttall’s policy prescriptions – a noun, a verb, and the most rancid comment underneath a Mail article – came across as a cry for attention. Small wonder that senior figures in Ukip expect Nuttall to face a move on his position, though they also expect that he will see off any attempt to remove him from his crown.

But despite his poor performance, Ukip might not be dead yet. There was a gleam of strategy amid the froth from Nuttall in the party’s pledge to oppose any continuing payment to Brussels as part of the Brexit deal, something that May and Corbyn have yet to rule out.

If May does manage to make it back to Downing Street on 8 June, the gap between campaign rhetoric – we’ll have the best Brexit, France will pay for it – and government policy – we’ll pay a one-off bill and continuing contributions if need be – will be fertile territory for Ukip, if they can survive as a going concern politically and financially, until March 2019.

On tonight’s performance, they’ll need a better centre-forward than Paul Nuttall if they are to make it that far. 

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to British politics.

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