Bloomberg News

Argentina Loses Debt Immunity Suit in U.K. Supreme Court

July 06, 2011

(Updates with NML’s comment in seventh paragraph.)

July 6 (Bloomberg) -- Argentina’s state immunity can’t prevent an offshore trader in distressed sovereign debt from using British courts to enforce claims over the country’s 2001 default, the U.K. Supreme Court ruled.

The decision in London today, which reverses a lower court ruling from last year, permits an affiliate of New York-based hedge fund Elliott Associates LP to seize Argentina’s assets in Britain using a $284 million U.S. court judgment it has against the South American nation. Argentina had argued U.K. courts didn’t have jurisdiction on the issue.

“It’s probably a good day for investors in sovereign debt,” Philippa Charles, a lawyer with Mayer Brown in London, said in an interview. “To make the bonds attractive, Argentina had to waive some sovereign immunity rights and this case was about the extent to which they’d done so.”

Four years after Argentina’s $95 billion default, then- President Nestor Kirchner offered bondholders 30 cents on the dollar for their debt -- a deal rejected by holders of about $20 billion of the bonds, including Cayman Islands-based NML Capital Ltd., the Elliott affiliate in the U.K. case.

Second Debt Swap

Kirchner’s wife and successor, President Cristina Fernandez de Kirchner, last year held a second restructuring, exchanging $12.9 billion of the debt that wasn’t swapped in the 2005 negotiation, bringing the total amount cleared to more than 92 percent of bonds outstanding.

Today’s ruling could have implications for buyers of European sovereign debt, since countries in Europe likely hold significant assets in the U.K., Charles said.

The U.K. court “has rejected another of Argentina’s desperate legal strategies contrived to avoid repaying holders of its defaulted bonds,” Scott Tagliarino, a spokesman for NML, said today in a statement.

A spokesman for Argentina’s Economy Ministry didn’t immediately respond to a call and a text message sent to his mobile phone.

The judgment comes a day after a federal appeals court in New York ruled against NML and another bondholder in their bid to seize $105 million of Argentine central bank assets held at the Federal Reserve Bank of New York.

The New York court said the Foreign Sovereign Immunities Act bars NML and EM Ltd., which hold almost $2.4 billion in judgments against Argentina, from collecting funds belonging to Banco Central de la Republica Argentina.

$172 Million

The disputed bonds, issued by Argentina in February and July 2000, were purchased by NML between 2001 and 2003, for about half their face value of $172 million. The bonds were governed by New York law, resulting in a 2006 U.S. judgment that Argentina owed NML the full value of the bonds plus $112 million in unpaid interest, according to the U.K. ruling.

Argentine central bank President Mercedes Marco Del Pont praised yesterday’s decision while saying she expects it to be appealed to the U.S. Supreme Court.

Yesterday’s U.S. ruling overturned an April 2010 decision by U.S. District Judge Thomas Griesa in which Argentina’s use of funds from its central bank was found to have “contributed to fraud and injustice perpetrated by the republic on the bondholders.”

The U.K. case is: NML Capital v. Argentina, U.K. Supreme Court, [2011] UKSC 31.

--With assistance from Bob Van Voris in New York and Eliana Raszewski in Buenos Aires. Editors: Christopher Scinta, Bill Faries

To contact the reporter on this story: Erik Larson in New York at elarson4@bloomberg.net

To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net


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