Argentina’s getting a reminder that its creditors will go beyond the ends of the earth to get their money back.
In his latest bid to enforce $1.7 billion in judgments on bonds from Argentina’s 2001 default, billionaire Paul Singer is suing the country and Elon Musk’s Space Exploration Technologies Corp. for rights to two launch-services contracts owned by the South American nation. In 2012, Singer tried seizing a naval vessel docked in Ghana, while efforts by other litigating creditors include seizing weapons stored in U.S. warehouses and trying to ground the presidential plane.
While Singer’s tactics haven’t persuaded the country to settle, they’ve prevented the nation from tapping international credit markets for more than a decade, prompting it to use reserves to pay debt. At $56.5 million per contract, the lawsuit against SpaceX, as the company is known, may reward Singer with just 7 percent of what’s owed. The outstanding debt has swelled with accrued interest over the past 13 years as Argentina refused to pay.
“They’re never going to seize billions of dollars’ worth of assets, but they can be a multibillion-dollar pain in the neck for Argentina,” Mark Weidemaier, a law professor at the University of North Carolina, said in a telephone interview from Chapel Hill. “If you can make it costly enough for Argentina to keep not paying you, well then maybe you can get them to pay you.”
Argentina defaulted on $95 billion of bonds in 2001. While about 93 percent of creditors accepted losses of 70 cents on the dollar in the country’s 2005 and 2010 debt restructurings, holdout investors, including Singer’s NML Capital Ltd., sued for full repayment.
In a separate case, NML, a unit of hedge fund Elliott Management Corp., and other creditors won judgments requiring the country to pay its defaulted debt in full at the same time it services its restructured debt. Argentina last month asked the U.S. Supreme Court to review the decision.
Concern Argentina would opt to default instead of paying the holdouts dubbed “vultures” by President Cristina Fernandez de Kirchner has pushed the cost to protect the nation’s debt against default to the highest in the world. Five-year credit default swaps fell 6 basis points to 1,896 at 11:00 a.m. in New York, according to CMA.
In an effort to avoid the reach of holdouts, Fernandez last year rented a private jet for $880,000 for a state trip to Indonesia rather than risk having her presidential plane embargoed. Three months earlier, NML had obtained a court order to detain a military training vessel in Ghana. The ship was held for two months before a court in Hamburg ordered it returned to Argentina.
This time, NML says that the country acquired property in the U.S. that can be seized after Argentina’s National Space Activities Commission signed a contract for two satellite launches with SpaceX. The private launch services, scheduled for 2015 and 2016 on the Falcon 9 spacecraft, are commercial in nature, while the entity is a political subdivision that’s funded by the Argentine congress, according to the complaint.
If successful, NML would sell the rights to those launches and apply the proceeds toward their judgments. While the complaint doesn’t assign a value to the rights, a standard launch price on the Falcon 9 is $56.5 million, according to the SpaceX website.
“Given that Argentina has systematically refused to pay its judgments, obey U.S. court orders, or even talk to its creditors, this effort to enforce judgments against Argentina is right and necessary,” Robert Cohen, an attorney for NML, said in an e-mailed statement.
Jesica Rey, a spokeswoman for Argentina’s Economy Ministry, declined to comment. SpaceX spokeswoman Emily Shanklin didn’t return a telephone message and an e-mail seeking comment on the lawsuit.
“There are no assets to be embargoed and the political reality is that the government has said it won’t pay the holdouts,” Marco Schnabl, a senior litigation partner at Skadden Arps Slate Meagher & Flom LLP, said yesterday at an event in Buenos Aires. “So the only thing left to do is to get both sides at a table to negotiate. This is a long hand of poker and the court rulings in favor of the holdouts may simply give the winner an incentive to keep up their bluff.”
Schnabl, who is based in New York, is an attorney for Argentine brokerage Puente Hnos Sociedad de Bolsa SA, which filed a brief in support of Argentina’s Supreme Court appeal.
The pressure on Argentina to settle is mounting as foreign reserves plunge to the lowest levels in almost eight years and annual inflation quickens to an estimated 35 percent.
While the country has made strides in mending relations with international investors and organizations including the World Bank and International Monetary Fund, Argentina needs to settle with the holdouts in order to sell bonds overseas again, according to Joshua Rosner, managing director and bank analyst at Graham Fisher & Co.
Argentina hasn’t sold bonds abroad since the default and would probably face an attempted seizure of those funds by the holdouts if it tried to do so without settling, said Rosner.
“They’re in a race against the clock,” he said in a telephone interview from New York. “The sooner they’re able to put an end to all of this, the ultimately more viable their economy is going to be.”
NML has sued Argentina 11 times for repayment on the defaulted bonds and won $1.7 billion of judgments that aren’t currently in appeal, according to the complaint.
While NML has repeatedly called on Argentina to settle its debts, the country has refused to pay anything more than the amount offered in the restructurings.
“The message has always been the same, ‘I’m going to make your life uncomfortable until you sit down and negotiate,’” Diego Ferro, co-chief investment officer at Greylock Capital Management LLC, said in a telephone interview from New York. “If this strategy worked, they would’ve settled with the boat or the other things Elliott did.”
To contact the reporter on this story: Katia Porzecanski in New York at firstname.lastname@example.org