Argentinian Naval Training Vessel Held As Collateral To Repay Jilted Bondholders

December 16, 2012 — Leave a comment
argentina navy

ARA Libertad
CC Image Courtesy of maduroman on Flickr

Earlier this October, a court in Ghana ordered the Argentinian naval training vessel ARA Libertad to be held until the Argentinian government posts a $20 million bond to release the ship. The action ultimately stems from Argentina defaulting on its debt in the early 2000s. Argentina’s default wiped its balance sheet clean of billions in bond liabilities while leaving bondholders with bonds worth 30% of their face value. Because Argentinian courts will not force repayment of the bonds, some bondholders who are holding out for the full value of the bonds have turned to more novel methods of collecting on Argentina’s sovereign debts.

One of the most time tested techniques for securing a judgment and payment on a debt is arresting the debtor’s assets when they are in a jurisdiction favorable to the bondholder. Thus, when Libertad arrived in Ghana, Elliott Capital Management sued for the vessel to be held until the Argentinian government pays the bond. While some would characterize the technique as nothing more than holding the ship hostage in exchange for a ransom, the bondholders merely seek to recoup the money the Argentinian government received from the sale of the bonds and promised to repay.

Elliott Capital Management, a New York based hedge fund, manages money for large institutional investors which often includes the likes of pension funds for firemen in Peoria, teachers in Chicago or trash collectors in Milwaukee. The Argentinian government has protested Ghana’s actions with their usual populist rhetoric and decried Elliott Capital Management’s actions as “trickery” instead of accepting it as simply the rule of law. Elliott Capital Management and other bondholders have received more than 100 court judgments against the Argentinian government, none of which the Argentinians have honored.

Yesterday the International Tribunal for the Law of the Sea ordered Ghana to release the Libertad. Because both Argentina and Ghana are signatories to the Law of the Sea Treaty, the International Tribunal’s decision is binding and Ghana must release the ship. The United States has thus far not signed the treaty and this incident is yet another example of why signing the treaty would be a serious mistake for the US and would impede US sovereignty.

No Comments

Be the first to start the conversation!

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s