US Supreme Court Refuses to Hear Vulture Funds Case
October 8th, 2013
The U.S. Supreme Court decided not to take the landmark debt case between Argentina and bondholders led by NML Capital, a hedge fund that buys the debt of countries in financial crisis. Argentina is expected to file a second petition in the coming months that the Supreme Court will review and decide again if it will hear the case. In June, Argentina filed a writ of certiorari to the U.S. Supreme Court asking the court to overturn a ruling by the 2nd U.S. Circuit Court of Appeals made last October. The ruling ordered Argentina to pay bondholders $1.33 billion based on the court’s interpretation of a pari passu, or parity clause.
“The faith community is saddened by the high court’s decision,” noted Eric LeCompte, Executive Director of Jubilee USA, a religious antipoverty organization. “Given the likelihood of Argentina filing again to the U.S. Supreme Court on this global poverty case, we’re praying upon another review the U.S. Supreme Court will take it.”
Hedge funds that seek to profit by buying up distressed debt of poor or strapped-for-cash nations at deeply discounted rates and then using legal systems to win up to a 400% profit are commonly referred to as “vulture funds.” There are several of these types of hedge funds suing Argentina after purchasing cheap Argentine debt when the nation defaulted on roughly $81 billion in 2001. At the time, Argentina’s unemployment numbers were soaring and the nation’s financial status mirrored Greece’s current financial woes. Argentina restructured its debt at about 30 cents on the dollar. Roughly 92 percent of bondholders took this deal. As the nation began to come out of economic decline, creditors who restructured have seen the value of their bonds increase. The holdout hedge funds that are suing Argentina have refused the deal several times and continue to sue for the full amount.
France filed an amicus brief to the U.S. Supreme Court in support of Argentina’s request. German courts sided with Argentina and rejected similar hedge fund claims to Argentine assets in Germany. The IMF weighed in on the case saying that the result would have major implications for how future sovereign debt is restructured. Additionally, the World Bank noted that vulture fund behavior threatens financial recovery in fragile economies. During the course of the case, formerly before the 2nd U.S. Circuit Court, the U.S. Government filed 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.
“These hedge funds may have mountains of money, but they are morally bankrupt,” stated LeCompte.
Read more on the Jubilee USA webpage dedicated to the case.
Thanks to Jubilee USA for the information in this post.