Hedge Funds’ Latest Salvo Is Ignored by Argentina’s Bondholders

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Argentina’s hedge-fund foes are at it again.

This week, Aurelius Capital Management and Elliott Management asked a New York judge to block payments on local Argentine bonds due 2024 after the country issued $1.4 billion more of the notes in April. They say the notes were offered to overseas investors, making them subject to a ban preventing the nation from paying foreign debt before it settles a decade-long dispute with them.

But while Elliott and Aurelius managed to persuade the judge to stop payments on some local notes as recently as March, this time bondholders are skeptical the hedge-fund creditors have much of a shot. That’s because unlike those securities -- issued as part of international debt swaps -- the offering last month was done through a local auction. The bonds, due in 2024, are little changed at 97.9 cents on the dollar since Aurelius sought its court order on Monday.

“If you ask me whether I’m worried, the truth is I’m not because I don’t think there’s any legal foundation to impede a transaction carried out in Argentina,” Luis Caputo, a money manager at Miami-based Noctua Partners, who bought the locally issued notes, said from Buenos Aires.

In its request to U.S. District Judge Thomas Griesa, New York-based Aurelius disputed Argentina’s claim that the bonds were “purely internal, not external indebtedness.”

It said the so-called Bonar bonds were marketed in Europe and the U.S. by Deutsche Bank AG.

Legal Battle

A day later, NML Capital, a unit of billionaire Paul Singer’s Elliott Management, also sought to block payment, saying the 2024 notes constitute external debt.

The hedge funds rejected Argentina’s efforts to renegotiate debt after a default in 2001 and instead won the right to full repayment in courts. In June, the country was banned from honoring debt it issued in those restructurings in 2005 and 2010 until it pays $1.7 billion to the NML-led group of investors.

Deutsche Bank spokesman Ari Cohen declined to comment on the claim it marketed the debt in U.S. and Europe. Aurelius spokesman Brian Schaffer and Elliott spokesman Stephen Spruiell declined to comment on investor comments saying they won’t succeed.

Argentine President Cristina Fernandez de Kirchner said in a nationwide broadcast Tuesday that it won’t pay the “usurious” rates the hedge-fund creditors are demanding.


“We’ve never been afraid that if we didn’t pay the vultures we wouldn’t have market access,” Fernandez said in a nationwide broadcast. “We planted the anti-vulture flag in the world. We gave a name to international usury and despotism.”

Argentina issued more of its 2024 bonds on April 21 through a one-day auction, raising three times the amount it targeted and pushing the size of notes outstanding to $4.5 billion. The hedge funds scrambled to challenge the move, but the speed of the sale didn’t give them enough time to derail the offering.

In February, Deutsche Bank and JPMorgan Chase & Co. halted plans to sell more than $2 billion of the local-law bonds due 2024 after Griesa asked the banks to produce documents related to the sale, which had been marketed to non-U.S. investors. The following month, Griesa said that local-law securities that had been issued as part of the global debt exchanges constitute external indebtedness and are also subject to his ruling.

Court Jurisdiction

“There’s less risk than more, but it’s certainly not zero,” Marco Santamaria, a money manager at AllianceBernstein LP, said by telephone from New York. “It will be difficult to prove that the transaction, at the heart of it, was an international bond issue. It was placed domestically with local brokers.”

Through multiple portfolios, AllianceBernstein owned 1.9 percent of the outstanding Bonar 2024 bonds as of March 31, data compiled by Bloomberg show. Santamaria declined to comment on whether AllianceBernstein bought securities in the latest issuance.

Even if Deutsche Bank was involved in the transaction and then sold the bonds abroad in the secondary market, that wouldn’t be enough to classify the sale as having occurred within the New York court’s jurisdiction, said Carlos Abadi, the chief executive officer of New York-based investment bank ACGM Inc.

“Aurelius has no silver bullet,” he said by e-mail. “The silver bullet would have been a cross-border solicitation.”

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