Hedge funds including Aurelius and NML, two of the so-called “vulture funds” who forced Britain’s Coop Bank to hand them over a major stake last year, have won a legal battle that Argentina claims could force it into another sovereign debt default.
The funds bought Argentinian sovereign debt on the cheap after its famous 2001 default in the hope of forcing the country to pay them back in full. Since then, other private bondholders – most of whom were long term lenders prior to the default - have accepted part repayment of their loans, agreeing to be repaid about a third of what the country owes them.
However, the Aurelius and NML-led bondholders, which represent only around 7 per cent of Argentina’s bonds, have repeatedly demanded that they should be paid in full. Argentina has repeatedly claimed that it cannot afford to both repay them the $1.3bn it owes them and keep up repayments on the rest of its towering debt.
The US Supreme Court, however, has sided with the vulture funds and declined to hear Argentina’s appeal, despite its claim in its filing that "Argentina will have to face, objectively, a serious and imminent risk of default." The court agreed with a lower court ruling that Argentina must pay both the haircut lenders and the vultures holding out for payment in full.
A spokesman for the Jubilee Debt Campaign said: “We are shocked the Supreme Court did not even agree to hear this case. It is so important in terms of setting a precedent. The vulture funds never lent any money to Argentina yet they could now force the country to default to those who did over the next couple of weeks.”
Debt campaign groups argue that much of Argentina’s debt crisis was started by the military junta and exacerbated by irresponsible lending.
The case famously saw NML obtain an order from Ghana to seize the Argentine navy ship The Libertad in 2012. Ghana held the ship for several months until a UN maritime court ruled against the seizure and ordered Ghana to let the ship go.
Mark Brodsky, known as “The Terminator” for his relentless approach to achieving his business objectives, has reportedly sold most of Aurelius’s stake in the Coop Bank’s debt. He and other vulture funds bought in when the debt was cheap in the hope of forcing the company to give them a stake worth much more in the long run.