Hedge Funds Revive Legal Action Against Argentina Over GDP-Linked Securities

Hedge funds have filed a new lawsuit against Argentina, seeking payments on securities linked to the country's economic performance. The legal action comes after a prior court ruling in 2024 dismissed the case for not meeting certain conditions.

Aurelius Capital Management and a group of hedge funds claim the Argentine government failed to make payments on GDP-linked warrants. These warrants were issued to holders of defaulted sovereign bonds who accepted new bonds at a discount.

The plaintiffs assert they now meet the conditions required for legal action, including securing at least 25% of bondholders to request action from the bond trustee.

Why Did This Happen?

The dispute began in 2019 when Aurelius first sued Argentina over the warrants. The funds allege the country failed to make nearly $160 million in payments on their $1.4 billion investment. The case involves GDP-linked warrants issued in exchange for defaulted sovereign debt.

The original lawsuit was dismissed in 2024 by a federal judge in New York for not meeting legal conditions. The hedge funds now claim they have satisfied these requirements and filed a new complaint.

What Are the Legal Implications?

The legal action highlights the complexities of sovereign debt restructurings and the enforceability of economic-linked financial instruments. The outcome of the case could set a precedent for similar disputes involving sovereign debt and derivative securities.

Argentina has not yet responded to the latest lawsuit. Lawyers for the country and representatives of the U.S. embassy did not immediately comment on the matter.

The case is now before the U.S. District Court, Southern District of New York, under the title Aurelius Capital Master, Ltd. et al v. The Republic of Argentina, 26-cv-337.

What Are the Market Implications?

The legal dispute could impact Argentina's ability to raise capital in international markets. Sovereign debt litigation often affects investor sentiment and borrowing costs for emerging market economies.

Market analysts will be watching the court proceedings closely to gauge how they might influence Argentina's debt restructuring efforts and broader economic policies.

The outcome of this case could also influence how hedge funds and other investors structure similar financial instruments tied to sovereign performance metrics.