Debt Justice Campaigners Call for Regulation of Vulture funds

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 Debt Justice Campaigners Call for Regulation of Vulture funds

Irish justice organisation Debt and Development Coalition Ireland (DDCI) has called for international regulation of vulture fund activity in response to the US Supreme Court refusal to hear the Government of Argentina’s appeal against the US$ 1.3 billion award to international vulture funds NML Capital and Aurelius Capital Management.

 Nessa Ni Chasaide, Co-ordinator of Debt and Development Coalition Ireland commented,

“Yesterday’s US Supreme Court decision shows the urgent need to curb the power of vulture funds. The Supreme Court chose to allow the vulture funds in question to trample over Argentina’s previous debt cancellation agreements with bondholders, signalling to the world that, if allowed, profiteering vulture funds can bring a country back into default.“ 

Over 10 years ago, Argentina defaulted on its debt. Mired in economic and political crisis, compounded by the devastating policies of external lenders such as the IMF, Argentine President Kirchner offered the state’s creditors about 25 cent in the dollar. Most creditors, seeing the writing on the wall, eventually accepted debt swaps worth about 50% of their original value. However, opportunistic creditors, coined ‘vulture funds’, which seek to buy distressed debt in order to claim the full value later on, did not participate in the swaps and have been suing Argentina since as a route to reclaiming full payment. In February, a New York court ruled that the Argentine Government must pay US$1.3 billion to the vulture funds. The Argentine Government sought to appeal this ruling. This week the US Supreme Court indicated that it will not hear an appeal.

DDCI colleague, Dr Alan Cibils, Professor and Chair of the Political Economy Department of Univerisidad Nacional de General Sarmiento in Buenos Aries commented,

“Argentina is now stuck between a rock and a hard place. If it complies with the court ruling and pays up out of Argentine Central Bank international reserves, it will risk facing thousands of law suits from defaulted bondholders who entered the 2005 and 2010 debt swaps [1]. If it ignores the US court ruling, and defaults on the vulture funds’ claims, the vulture funds may seek to impound Argentina’s Bank of New York account from where Argentina pays the bondholders who entered the previous debt swaps [2].”

Ms Ni Chasaide continued,

“Regulating vulture funds is possible. In 2010, due to pressure from campaign group Jubilee Debt Campaign UK, the UK Parliament passed the Debt Relief (Developing Countries) Act. It limits any entity in the UK engaged in suing a developing country that has  previously been given debt cancellation, to getting the amount they would have received if they'd been subject to that debt cancellation scheme. Governments around the world could adopt an even more decisive stance than this, and initiate legislation across jurisdictions that limits vulture fund claims to a low multiple of what they paid for the original debt. This would be a step toward putting vulture funds out of business.”

She continued, 

"In Ireland, mortgage holders from zombie Anglo Irish Bank are already in the hands of vulture funds and have lost their consumer protections as a result [3]. Vulture funds should not be allowed to purchase mortgage loan books in Ireland as they are not subject to the same legal regulation as Irish resident banks through the Central Bank of Ireland's Code of Conduct on Mortgage Arrears."

For interviews contact:

Nessa Ni Chasaide Coordinator DDCI 01 6174835 / 087 7507001 or to set up an interview with Dr Alan Cibils in Buenos Aires.

Notes to the editor

[1] One of the clauses of the debt swaps indicated that if Argentina ever made a better offer, bond holders would be eligible for the improved terms. This would mean that Argentina would have to pay the full amount of the original debt according to the original terms which would essentially mean another massive default.

[2] To avoid this, Argentina needs to find an alternative payment arrangement. Until that is done, Argentina may have to temporarily enter a technical default, not due to an inability to pay but because the payment channels have been interrupted.

[3] In March 2014, as estimated 13,000 mortgages owned by the defunct Anglo Irish Bank / Irish Nationwide Building Society (IBRC) were sold to Shoreline Residential Limited, an indirect affiliate of Lone Star Fund VIII and Mars Capital Ireland Limited funded through funds managed by Oaktree Capital Management LP. After the sale IBRC indicated to mortgage holders "the Purchasers have confirmed that they will be directing that the mortgages are serviced in accordance with the terms of the Code of Conduct on Mortgage Arrears (CCMA)". However this is a voluntary indication of agreement by the vulture funds and not a legal obligation. IBRC also indicated to mortgage holders that, as IBRC are no longer the beneficial owners of the mortgages, they have no influence over any future changes to contractual interest rate levels or repayment schedules.