Billionaire Hedge Fund’s Naval Prize Nabs 1% of Payday
For all the embarrassment billionaire Paul Singer caused Argentina by seizing one of its navy ships, the biggest triumph in a decade-long dispute brings him just 1 percent closer to recouping his $1.6 billion claim.
The hedge fund manager still lacks the leverage to compel the government to settle, even after Argentina sought help from the United Nations, evacuated part of the 326 member crew and fired the head of its navy since Ghana impounded the training vessel on behalf of Singer on Oct. 2, according to Anna Gelpern, a professor at Georgetown University. Singer, who owns debt from Argentina’s $95 billion default, rejected two restructuring offers that paid investors 30 cents on the dollar and is seeking to force the South American country to repay in full.
While Singer’s efforts from freezing Argentine central bank funds in New York to seizing the navy’s tall ship in Africa have failed to result in payouts, Argentina’s unwillingness to resolve the claims has also prevented the nation from tapping the international credit markets for more than a decade. That’s prompted the government to use foreign reserves to pay debt and increased its borrowing costs to more than double the 4.65 percent average for developing nations.
“It’s getting loopier and loopier,” Gelpern said in a telephone interview from Washington. “They’re throwing mud at the wall to see what will stick.”
Peter Truell, a spokesman for Singer's New York-based hedge fund Elliot Management Corp., declined to comment on the ship seizure and the firm’s attempts to recoup its money.
The average yield on bonds issued by Argentina, the world’s largest soybean exporter, is 10.62 percent. That’s more than twice the 4.875 percent rate that Bolivia, one of the region’s poorest countries, offered to sell 10-year bonds on Oct. 22.
Ghana detained the Argentine vessel after a court in the West African nation ruled in favor of a claim by Elliott’s NML Capital Ltd. that the prospectus for the defaulted Argentine bonds waived sovereign immunity on attachable assets.
Argentina modified prospectuses on bonds issued in its 2005 and 2010 restructurings to exempt certain assets, including military property, from the sovereign immunity waiver.
Lawyers for NML wrote in an Oct. 5 letter that the fund would authorize the navy ship to leave the port of Tema if the country posted a $20 million bond, according to legal correspondence obtained by Bloomberg.
‘Take Our Frigate’
After the ARA Libertad was held in Ghana for almost three weeks, President Cristina Fernandez de Kirchner ordered on Oct. 20 the evacuation of sailors on board the three-mast frigate, including crew members from Brazil, Chile, Uruguay, Paraguay, Venezuela, Ecuador, Bolivia and South Africa.
While she also ordered the government to seek damages from Ghana, two days later Fernandez said they could keep the ship.
“As long as I’m president, you can take our frigate, but nobody is going to take the liberty, the sovereignty and dignity of this nation,” Fernandez said in an Oct. 22 speech.
The government chartered an Air France jetliner, which isn’t subject to seizure upon landing in Ghana, to fly the stranded sailors back to Buenos Aires.
Litigating creditors that also include Kenneth Dart, the billionaire foam-cup magnate who runs EM Ltd., have attempted to satisfy judgments through an array of ploys including the freezing of Argentine bank accounts and trying to ground the presidential plane Tango 01 during a maintenance trip to the U.S. They’ve been mostly unsuccessful so far, even though legal appeals have reached as high as the U.S. Supreme court.
While the ship, worth just 1 percent of the value of outstanding claims that Singer owns, is “small potatoes,” the hedge fund manager could ultimately gain the upper hand if it wins a separate case in U.S. federal appeals court, said Mark Weidemaier, a law professor at the University of North Carolina.
Argentina appealed a decision from a U.S. district court that a so-called pari passu clause in the defaulted debt securities bars Argentina from paying owners of the new bonds before it pays the so-called holdouts. If upheld, the ruling could force Argentina into default on bond payments if it refused to pay the hedge funds. The court heard arguments in July and a ruling is expected any day.
“If you can present the government with the choice between default and paying you, you’re in great shape,” Weidemaier said.
Diego Ferro, who helps oversee more than $500 million at Greylock Capital Management LLC in New York, says Argentina will continue to struggle to protect its property abroad as long as Fernandez refuses to settle with the hedge funds.
“If you’re Argentina and you don’t want to comply with judgments from U.S. courts, which Elliott has won, you have to be very careful with where you have your assets around the globe,” Ferro said. “In this case, they made a mistake and they’re paying for it.”
The extra yield, or spread, investors demand to hold Argentine government dollar bonds instead of U.S. Treasuries narrowed eight basis points to 850 at 1:15 p.m. in Buenos Aires, according to JPMorgan.
The cost of protecting Argentine debt against non-payment for five years with credit-default swaps rose 16 basis points to 972 basis points, data compiled by Bloomberg show. The swaps pay the buyer face value in exchange for the underlying securities or cash if a government or company fails to comply with debt agreements.
Warrants tied to Argentina’s economic growth rose 0.04 cent to 12.52 cents. The peso slid 0.1 percent to 4.7513 per dollar.
Argentina is unlikely to let a $20 million ship force it to negotiate with Elliott after thwarting its legal advances for a decade and may instead dig in its heels, said Jorge Piedrahita, chief executive officer at Torino Capital LLC.
Fernandez’s Foreign Ministry has derided Elliott as a “vulture fund” that mounted “an attack that is nothing less than kidnapping, extortion and an act of piracy against a sovereign nation,” according to an Oct. 20 statement.
“I don’t think the government feels more pressure to reach a solution with the vulture funds with this boat,” Piedrahita said in a telephone interview from New York. “They are ideologically walled in to not doing so.”