Relevant Document:
Complaint
Yesterday, Wednesday, Dec. 13, investment manager Aurelius Capital, other holders of Argentina’s contingent 2005 and 2010 GDP-linked securities, or GDP warrants, and trustee Bank of New York Mellon filed a new action to recover up to $6 billion in unpaid amounts due under the GDP warrants for reference years after 2013. According to the plaintiffs, Argentina manipulated data and payment calculations for these years to reduce its obligations to holders.
According to the complaint in the Southern District of New York, Argentina acted “willfully and in bad faith, with full knowledge that it was not following the plain terms of the Global Securities and that its conduct would have the effect of destroying Holders’ right to payment.”
Aurelius
sued Argentina in 2019 alleging that the government manipulated data to avoid paying amounts due on the GDP warrants for reference year 2013. The GDP warrants, which were issued along with new bonds in exchange for defaulted bonds, require Argentina to pay holders if “Actual Real GDP” exceeds “Base Case GDP.” Actual Real GDP is defined as “the gross domestic product of Argentina for such Reference Year measured in constant prices for the Year of Base Prices,” as published by the National Institute of Statistics and Censuses, or INDEC by its Spanish initials. Motions for summary judgment in that suit remain pending.
The plaintiffs allege that in the fall of 2013, as Argentina’s economic growth met contractual thresholds requiring payment on debt securities, the government stopped publishing actual real GDP measured in constant 1993 prices and discouraged INDEC from doing so. The government also abandoned the adjustment fraction set forth in the GDP warrants and adopted an adjustment fraction based on its own reference year of choice, the plaintiffs say, which reflected the government’s “self-serving views of the supposed ‘spirit’ of the GDP Warrants.”
According to the plaintiffs, these actions violate the terms of agreement as Argentina did not obtain supermajority consent from holders to make modifications. Additionally, the plaintiffs assert that Argentina breached the implied covenant of good faith and fair dealing by engaging in “conduct that would have the effect of destroying or injuring Holders’ right to receive the fruits of the contract.”
This lawsuit comes on the heels of the Sunday, Dec. 10, inauguration of
Javier Milei as president of Argentina. Milei, a staunch right-wing libertarian, campaigned on promises of
sweeping economic reforms, including dollarization and scrapping the central bank, to combat rampant inflation and decades of instability. His presidency signals a potentially increasingly turbulent economic environment as well as a significant shift in the government’s overall financial strategy and approach to managing crippling debt.