GDP-coupon case: Preska rules in Argentina’s favor

The New York judge declared the case closed and the lawsuits void. Plaintiffs have 30 days to appeal

New York Federal Judge Loretta Preska ruled in Argentina’s favor in a case over securities linked to the country’s gross domestic product issued in 2005 and 2010.

The case merged lawsuits presented by several hedge funds accusing Argentina of changing how it calculates its GDP to avoid paying an extra sum that depended on its economic growth. In her 32-page ruling issued on Monday, Preska declared the case as closed and any open motions as moot. The plaintiffs now have 30 days to appeal.

The lawsuits in question were presented in 2019 by Aurelius Capital, Novoriver, ACP, 683 Capital, WASO, and Elazar Romano, among other hedge funds. There is another lawsuit in London regarding GDP coupons, but Argentina lost that US$1.46 billion suit in April 2023, and appeal hearings are scheduled to start in May. The US complainants called for a similar outcome from Judge Preska.

In her ruling, Preska determined that the plaintiffs did not comply with the requisites to file the suit directly against Argentina, which should have been done through their trustee, the Bank of New York Mellon. The bonds’ contracts stipulate that one exception to this no-action clause, contemplated in Section 4.9, is when the country fails to pay “the principal of and interest on their debt securities.”

However, after analyzing the contracts, Preska considered that the GDP-linked securities are “contingent payments” and therefore “distinct from principal and interest.”

“The Court finds that Section 4.9 means exactly what it says,” Preska stressed.

The case can be traced back to December 2001 when, amid a political and economic crisis, Argentina’s President Adolfo Rodríguez Saá announced the suspension of sovereign debt payments. In 2005, the government of Néstor Kirchner summoned creditors to agree on new ways to repay the defaulted debt. 

During the restructuring negotiation process, Argentina offered new securities with a haircut of about 70% of the principal and offered creditors a sweetening clause that triggered the payment of a coupon if the country’s GDP grew at a rate higher than projected.

At the time, Argentina used data from a 1993 economic census to calculate its GDP. In 2014, Argentina rebased the formula to calculate its GDP using data from a 2004 census after the International Monetary Fund urged it to do so. With this change, 2013 GDP growth was 2.92%, below the 3.22% that would have triggered the GDP coupon payment. Following that change, Argentina stopped publishing the 1993-based series.

The plaintiffs claimed that Argentina had willfully decided not to publish its GDP in 2013 with 1993 prices to hinder payment of the GDP coupon. The bond’s contracts, however, contemplated the possibility of rebasing the country’s GDP calculations. Preska did not mention that possibility in her ruling, as she considered that the plaintiffs had violated contractual terms. In addition, the contracts contemplated the possibility of rebasing the country’s GDP calculations.

Argentine media are covering both the New York and London cases as consequences of alleged manipulation of the GDP figures, a notion that Preska and British High Court Judge Simon Picken have dismissed.

In April 2013, Argentina lost a lawsuit at London’s High Court regarding the euro-denominated GDP-coupons. The U.S. plaintiffs urged Preska to reach the same conclusion as that court, saying that section 4.9 “ought to be” regarded as including the GDP coupons. Preska said her court was “unwilling to go beyond the plain text” of the contracts.

Last week, Argentina authorized a US$337 million payment to appeal in London, and the first hearings are scheduled for May. The country is expected to use Preska’s ruling as an argument in its presentation.


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