Monday, March 4, 2013

Debt Trial of the Century: 2nd Circuit Court of Appeals to Rule on Vulture Funds and Argentine Bonds

February 27, 2013

Contact:  Jennifer Tong, Communications Director / (m) (320) 241-7082 / (o) (202) 543-0692

Arguments End in ‘Debt Trial of the Century’
2nd Circuit Court of Appeals to Rule on Vulture Funds and Argentine Bonds

NEW YORK – Arguments concluded today for Argentina and two holdout vulture funds, including Paul Singer’s NML Capital. The Financial Times dubbed the proceeding the “‘the trial of the century’ in sovereign debt restructuring.” Jubilee USA Network’s Executive Director, Eric LeCompte observed the legal proceedings. Jubilee USA held a vigil outside the courthouse for poor people that are affected by vulture funds.

“Judges at the 2nd U.S. Circuit Court of Appeals will issue their ruling in the coming weeks.  We pray that they will side with the people of Argentina, the US Government and the world’s poorest people,” said Eric LeCompte, Jubilee USA Network Executive Director.

NML Capital bought Argentine debt in 2001 cheaply when Argentina defaulted.  Argentina restructured with some of their creditors but holdout creditors, led by NML, rejected the proposal and sued for the full amount.  Vulture funds buy the debt of poor countries or countries in financial recovery for pennies on the dollar and then sue to make as much as a 400% profit off the backs of the poor. Jubilee USA Network introduced legislation in 2009 to stop vulture funds from making a profit off of poor countries. 

The US 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.  The International Monetary Fund and World Bank assert that vulture funds negatively impact debt relief and restructuring efforts in poor countries.

“Vulture funds such as NML Capital speculate on the misfortune of countries and saddle developing countries with huge debt loads, depriving them of valuable financial resources badly needed for domestic development and growth,” said Bhumika Muchhala from the Third World Network, an independent network of organizations focused on developing countries.

In June, these same vulture funds supported legislation in the New York State Senate and Assembly which would have allowed the funds to continue to litigate even after post-court judgment.  Jubilee USA Network came out against the legislation by mobilizing 4,000 supporters in NY to write, e-mail and call their State Assembly and Senate Members. With American Jewish World Service, Jubilee USA put enough pressure on the New York legislative bodies to stop the legislation from coming to a vote.

In October, the vulture funds were able to convince Ghanaian Courts to temporarily seize an Argentine ship. The ship was eventually returned to Argentina. Then this past November, the vulture funds made a pari passu or parity argument in the US District Court and the court ruled in favor of the vulture holdout creditors. Argentina was ordered to pay $1.3 billion on December 15, the same date they were to pay the creditors that had restructured. The federal appeals court froze the payout and heard new arguments today in the 2nd U.S. Circuit Court of Appeals in New York.  A ruling is expected in the coming weeks.

“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,” said LeCompte.


Jubilee USA Network is an alliance of more than 75 US organizations, 250 faith communities and 50 Jubilee global partners.  Jubilee USA Network has won critical global financial reforms and more than $130 billion in debt relief for the world’s poorest countries.