Elliott Management Vs Argentina Round 2: Now It's Personal

Tyler Durden's picture

When it comes to international bondholder process, work out and restructuring (and litigation), on the one hand there is Europe, and specifically the ongoing Greek reorganization into an ever tinier balance sheet by way of cramming down weak-covenant, local-law bondholders (who are "encouraged" to participate in ever more coercive principal recovery events, as defection would result in wipeouts of recoveries in other cross-held bonds of the impaired class should a Grexit-type event occur, which then would lead to massive losses on all European bond holdings for the same creditors: a true Mutually-Assured Destruction scenario, as the IIF's Jacques Dallara understood quite well), and on the other hand there is Argentina.

But whereas the European fiasco is still (relatively) structured (at least until Spain et al join the cram down fray, something none other than Lee Buchheit predicted would happen courtesy of the prevalence of local-law bonds in PIIGS outstanding inventory), if getting more complicated with incremental subordination of various junior classes of sovereign debt either due to legal reasons - i.e., local-law vs international-law bonds, structural reasons: the presence of Collective Action Clauses in consent solicitations and "indenture-stripping" thresholds for a holdout class (think perpetual fly-in-the-ointment Elliott), or due to the far more abstract "unimpairability" and primacy of the bondholder - i.e. the IMF, the ECB, or another Official Sector entity (all of which was previously explained here), in Argentina it is a totally chaotic free-for-all, where a distressed creditor holdout is now unilaterally pursuing "incremental recovery" of par in local and international courts of law.

The distressed creditor, in this case, is international bondholder litigation expert, hedge fund Elliott Associates which had purchased Argentina bonds with pari passu clauses shortly before the country's 2001 default which involved $100 billion in sovereign debt - the biggest (so far) sovereign default, but at prices at fractions of par, and the "incremental recovery" in this case being an Argentinian three-mast frigate, the ARA Libertad (which serves as a school ship in the Argentine Navy) which the fund "seized" after it was impounded off the coast of Ghana a month ago "following judgments in our favor against Argentina in the U.S. and the U.K." as Elliott writes in its latest investor letter.

In other words, both Elliott and Argentina are learning the hard way, that in an insolvent world where there is no driving force to push the debtor and creditor to reach amicable, if increasingly more unpleasant outcomes (such as Europe, if only for the time being), one has to resolve to ever more unpleasant tactics to get what one believes belongs to them.

What is particularly interesting in the drawn out legal case of Elliott, or technically NML Capital, vs Argentina, western courts have ruled in Elliott's favor on several occasions, most recently the 2nd Circuit Court of Appeals, which upheld the Pari Passu clause of the pre-petition bonds. To wit:

We hold that Argentina breached its promise and, accordingly, affirm the underlying judgments of the district court.

In brief, what this means is that Elliott which bought Argentina bonds, of which there was about $100 billion nominal, at a discount, spearheaded a holdout class that refused to be rolled into an exchange offer whereby the firm would receive 25-29 cents in recovery (roughly comparable to what Greek bondholders got in the first PSI from early this year), and instead has held out for par recoveries. Argentina, in turn, has refused to concede to Elliott's demand and while continuing to pay the consenting creditors, is adamant in refusing to even acknowledge that Elliott has any rights, despite numerous courts finding the firm falls under a pari passu umbrella.

What this really means is that Western courts have decided that Elliott has not been stripped of pre-petition rights despite, or rather in spite of, holding out, and is entitled to collecting up to par recovery. There is one problem: there is absolutely no enforcement mechanism!

And therein lies the rub: because how does a court located on Pearl Street in New York order the Argentina State Treasurer located in Buenos Aires to wire a payment on bonds, via intermediary banks, that Argentina effectively has disowned? It can't. Or rather, it can't using peaceful means and/or simple M.A.D. coercion of the type one can apply in Europe (remember: Greek creditors had to agree to a massive haircut, and more to come, as the alternative was a Greek default, Grexit, collapse of the Eurozone, dissolution of the EUR, redenomination, massive losses on Spanish and Italian bonds, and who knows what other apocalyptic scenarios). It can, of course, use military means but the time for a Falklands-type escalation has not come yet. Indeed, the fact that there is no way to enforce any judgment is why the Second District added the following remand in its judgment:

However, the record is unclear as to how the injunctions’ payment formula is intended to function and how the injunctions apply to third parties such as intermediary banks. Accordingly, the judgment is affirmed except that the case is remanded to the district court for such proceedings as  are necessary to clarify these two issues.

Elliott, in court, stated that as part of its proposed enforcement process, the next step would be to go after complying intermediary banks for aiding and abetting, by paying exchange bondholders without paying the holdouts. However, what is clear is that in the case of enforcing intermediary banks from complying with any judgments, there is again no set case law, and whereas Elliott will litigate, and likely win, by the time there is a final injunction, Argentina will likely have defaulted once more (there is a reason why its bonds have plunged in recent days, and it has nothing to do with this particular sideshow which is merely litigation from its last restructuring). In the meantime, Elliott continues to be the odd man out and there is no way to force anyone to wire it money, despite its legally-enforced argument it has fully equitable claims.

Today, Argentina confirmed all of this, after its economy minister stated, very clearly, that no deal would be struck to pay "vulture funds", and that Elliott would get no love from Buenos Aires, and certainly not one penny. From the Buenos Aires Herald:

Economy minister Hernán Lorenzino assured today that the government “will never pay” the ‘vulture funds,’ although also affirmed that it will continue to pay “93 percent of the credit owed."


“We will continue to pay them in dollars, euros and yens, as we should be. We will respect up to 93 percent of the bond payments.”


“Those who think differently haven’t understood anything. What happened with the ship (Libertad) and the ruling in New York last week are attacks that do not go by the book.


"Clearly there are sectors that can’t cope with the successes of debt-reduction.”

We now eagerly await to see what Argentina's response will be to "attacks that do not go by the book" - most likely nothing. But the Libertad diversion has hardly made Argentina a fan of Elliott's tactics.

As for Elliott, what just happened with the ship confiscation case study is a model of how the fund will generate ongoing recoveries: it will literally "grab" any Argentinian property it can in friendly jurisdictions, and await for a judgment that makes it officially property of the hedge fund. The only problem with this approach is that  it will have to confiscate a whole lot of Argentinian assets - NML has said it was willing to release the vessel in exchange for a bail of $20 million. Considering Elliott's claim is for $1.6 billion in Argentina bonds (notional value, the cost is far, far lower), the hedge fund would need to become the world's largest legal and legitimate privateer.

And while this in many ways is almost a comic diversion, it brings us to a topic which we are confident will be far more discussed in 2013: how creditors will be "made whole" on their international bond claims in a world in which there is about $30 trillion in excess debt. Sadly, there will not be nearly enough frigates to satisfy everyone. The reason: even as sovereign debt piles on more and more and more (to offset the leveraging by the household, financial and corporate sectors), the actual sovereign assets are declining with each passing day, as the newly raised money goes not to rebuild an asset base (a prudent investment decision), but to fund already deficient capital in a global welfare state that is simply unsustainable.

But much more on that in early 2013, when the international defaults commence in earnest, first in Spain where local-law bonds will be the first to go, then Japan, and thereafter: everywhere else.

As for the Argentina vs Elliott bare-knuckled match, enjoy it while you can: very soon the Latin American country will likely proceed with yet another round of creeping selective defaults, exchange offers, consent solicitations, and other debt reorganizations, which will make the current free-for-all into a total and epic labyrinth of creditors, interests, bondholder classes, general unsecured claims, and other total confusion which we are confident, will soon lead Elliott to give up in disgust and just walk away.

After all why bother with Argentina: there are far higher IRRs to be generated by shorting local-law Spanish bonds while buying their international-law cousins. In fact, courtesy of the current government's arrogance and naivete, the position can be put on in a cost, and carry, neutral basis. Then sit back and just wait for the spread to blow out.

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Almost Solvent's picture

This thing looks as ready to sink as the HMS Bounty with 10 tons of Germany's gold

vast-dom's picture

amusing post. how one country rules in favor of plaintiff of said country in affairs of sovereign allegedly insolvent and protected by its very foreign laws to that effect said foreign country. boggles the mind; all of it.

DoChenRollingBearing's picture

Goooooooooool!  Elliot!

Goooooooooool!  Argentina!

vast-dom's picture

Must Watch Chris Hedges:




Very excellent.


Michael Jackson <-> Brand Obamma <-> Corporations

James_Cole's picture

Remember, Elliott is Romney's top guy. Could get a whole lot more interesting if Romney wins the election. 

Western's picture

fuck credit and its creditors, it's a ploy.

SafelyGraze's picture

account-liquidation-via-tax-levy, meet ann barnhart

obviously I was intrigued^H^H^H^H^H^H^H frightened when she showed up on halloween

q99x2's picture

I never knew Michael Jackson and never willingly listened to any of his music. I haven't had a TV for 30 years and don't listen to radio so I'm not sure what Chris Hedges is talking about. I was born in the US. That is not my fault. I'm a firm believer that 30,000 years of evolution has left the human brain with about the same capacity. But technology keeps doubling its advances fairly independent of the advances of human biology. Therefore it is technology that will create the next socio-political enviroment in which humans will live. The Internet has made social changes, which although have not yet been classified politically, have changed human interaction through globalization of democratic understanding of one another no matter what country or what race of people. Only through tremendous efforts can the old social order attempt to maintain control. When the financial system is replaced, whether through a collapse of the current system or a spontaneous arising of a new one because of technology will the old socio-political-corporatism disappear. And it can happen just like that. A horrifying possibility exists where the existing human system will attempt to destroy everything in an effort to maintain control. Each false flag will have to become larger. At this point in time we are up against the machines and from a humane standpoint IT may hold the key to our future.

creonnoir's picture

The machines ARE here: Watson

Humans in control, for now...

kliguy38's picture

Don't worry this is only the beginning.......they will be able to "Corzine" any sovereign debt in this country....by the time you collect, your great grandchildren will not even rember you.

Essential Nexus's picture

Just put some Argentinian hookers on the boat and have it follow the US fleet. They'll make 1.6 billion in a few months.

Offthebeach's picture

Why do I feel investing in a 7 the Fleet chasing brothel is a better bet than Argentine bonds?

Business model. Say a lease for $100k/mo. Insure, maintenance, fuel, dock, port fees, another $200. Ten grand a day.
Lets say 2 good business nights a week 8 a month.....
I just don't see it competing, price wise with some Albania 17year old on a Vespasian outside the gates. Sailors aren't going to pay a dime to replicate their work venue.

TahoeBilly2012's picture

That was a trully informative writeup! An actual real world case of offshore debt collection from a sovereign. Thanks!

Orly's picture

It was very well written, as well.  Clear, concise and with minimal jargon that even I could understand.

Thanks, too!


falak pema's picture

For a boat like that I'd sail the seven seas and rip off the seven veils from the faces of seven Cristina Fernandez Kirchners of Spanish Main. 

Orly's picture

It's sure a beautiful ship, falak.


Essential Nexus's picture

Argentina probably has some gold (IOUs) stored in the vault of a nation friendly to Elliot...

Big Ben's picture

I think I read somewhere that Argentina had liquidated its gold reserves some years ago. (I could be wrong on this.)

But I wonder where Greece and Spain have their gold.

Aerolineas Argentinas, majority owned by the Argentine government, has flights to Miami and a number of other countries. Maybe they could try grabbing a few airplanes...

Buckaroo Banzai's picture

That was before the 2001 collapse. After the collapse they actually started buying gold and rebuilding their reserves.

Urban Redneck's picture

If Argentina continues with its fetish for nationalizing domestic businesses with overseas assets (or picks up the pace to keep up with the Joneses to the north) then there will be an entire orchard of low hanging fruit for the vultures to pick clean.

DOT's picture

All your boat are belong to us.

Matt's picture

Dear Valued Investor:

We here at Elliot Associates would like to invite you to join us on board our new yacht, to discuss our investment over 10 years ago in Argentinian Bonds. Unfortunately, we have not recieved any cash; however, we feel a delightful dinner on board our new flagship is just as good!

Hope to see you there!

Jim in MN's picture

Wow, Tylers, that "But whereas..." sentence in the summary may win the prize for the most run-oniest sentence on ZH evar.  Or at least come close.  And yet, so appropriate to the topic!

Terrorist's picture

I love the Tyler with sentences longer than Cicero. It's like a roller coaster, if you don't throw up it's pretty amusing.

rufusbird's picture

Read a  couple of books by William Faulkner to warm up!

Yen Cross's picture

 Those German/Spanish spreads are getting ugly again.


Spain 5.697 5.698 5.615 0.053 0.94% 4.241bund 3.989t-note 3:20:58
Orly's picture

Say, YC, have you ever witnessed a more coordinated and blatant ramp-job in risk 4X pairs in all your time trading?  I sit astounded watching this.  Have you ever had this experience before?  How did it turn out?


Yen Cross's picture

 I can't remember to be honest with you Orly. Maybe back in May of 2010. The risk pairs were pretty ramped up during that time frame.

  I think we are going to get some selling going into weekend. Some of my indicators are looking pretty stretched in longer time frames. The aud/usd is trading in a 75pip range this whole week! You know what that usually indicates. (breakout)

  The E/M markets are buying USD during late Europe early N.Y. and selling them back for Euro and Sterling late Asia early Europe.

     E/Ms are getting overheated again. The Fed. BoJ SNB are really playing a dangerous game. Just wait until the ECB goes all in.

Islander56's picture

There only 3 words I can think of to say to Singer and Elliot. Im too polite to say them.

Manthong's picture

They'll probably need to try to get guys like this interested in a collections gig..


spanish inquisition's picture

I say Argentina brands Elliott Management financial terrorists and invokes the Bush doctrine. They notify the world that Argentina reserves the right to strike at Elliott anywhere in the world. Any additional deaths outside of primary targets will be treated as terrorists in league with Elliott, because they were too close to the strike point and should of known better.

Monedas's picture

Never lend your gold .... you'll never see it again !    Don't buy to sell .... hoard to barter !  End of message !

El_Puerco's picture

Frigate Libertad:  “Corbeta Espora: vulture fund already has lawyers”..

Romney's Wife:: She will have some kind of protection and while taking a tour in her new frigate on weeks ends ....



Its_the_economy_stupid's picture

I think I remember that this ship served as a prison in the 70's. Probably has nice appointments!

DutchMadness's picture

Wait till those creditors will confiscate Gold bars in faults all over the world.. ( well, Tungsten..) . Then it will gets bloody..

steve from virginia's picture





"... even as sovereign debt piles on more and more and more (to offset the leveraging by the household, financial and corporate sectors), the actual sovereign assets are declining with each passing day, as the newly raised money goes not to rebuild an asset base (a prudent investment decision), but to fund already deficient capital in a global welfare state that is simply unsustainable."


The global automobile welfare state, the 'queen' sits at the end of your driveway. The vanishing capital is petroleum, the return on the waste is negative: less-than-zero. That is why the debt is compounding ... there is no other reason.


It is ironic that Elliot decided to 'repo' a vehicle ... there are a billion used cars out there to tow away ... sorry, none of them are worth anything.


Zero Govt's picture

the entire Legal/Justice system solves nothing, it is simply retribution for whatever that's worth (not much) 

Charles Dickens, story book writer and English court reporter, wrote hundreds of years ago the business of the Courts is to promote the business of the courts

when you make deals 'Buyer Beware'... no contract or legal system is going to help you out if the deal or your relationship falls apart. The 'justice' industry of fee accruing ponces wiill just bleed you for more

Snake's picture

The whole thing is just a propaganda ploy against Cristina.  They are trying to shame her (and Argentina, a dangerous "bad" example for Greece et al (et al, et al, et al, et ...) ).  Her response was basically "Stuff the frigate up ur ass.  Ur not gettin a dime from us".  She will get the frigate back, and will not pay a cent.  Watch her.

SmittyinLA's picture

How many cannon does the Libertad have? 

SmittyinLA's picture

If they can collect "Argentine stuff" from Ghanans imagine what "American stuff" they can collect from the US govt., we got a whole lot more unservicable debt than the Argentines, we fart their total of debt daily.


We need to liquidate all unused federal real estate and property before the vultures take it, lets leave them a Greek Finance Ministry photo and a bunch of trash and old chairs, they can have all the low income housing projects too, we need to start collecting some property tax revenue on that Socialist crap anywa, oh ya rent revenue taxes too.


Fuck the bankers.

the grateful unemployed's picture

pay attention because these guys stiffed the bond holders, but they saved the Merval. actually is was Carlos Slim who bought up some nice companies at 1/100th of their value. and when this country has it Argentina moment, you have to figure it will cut the same way. the stock market is a sacred cow, but the bond market holders are headed for the slaughter. even if they orphan the 30yr, you are sitting on dead money, while those with even a little cash will buy up equities at the bottom. Bernanke is running asymettrical economic warfare right now, stealing equity from savers to pay borrowers and prop up the big banks. what do you think he'll do in a crisis, (well we already know, he should have been charged with criminal activity during 2008, and once you get away with something like that you do it again, human nature, Latin America, Bankster America, no difference)

the grateful unemployed's picture

this goes back to 2001? i would say its time to move on and anyone who bought those bonds at the time thought they had these guys by the Long Term Capital short hairs (Russian bonds with a currency hedge). Americans lead the world in greed, we do it better, and we're real bulldogs  about going after deadbeats, unless they're former Presidents. eventually UST is going to screw its bond holders, so pay attention ducklings and see how its done.