A/HRC/33/54 C. NML Capital Limited v. Argentina 19. It has been well documented how the deteriorating economic, financial and social situation led Argentina to a catastrophic collapse in 2001 (A/HRC/25/50/Add.3). Soon after defaulting, the Government recognized the need to restructure roughly $81 billion of debt. In two successive exchanges of offers, in 2005 and 2010, Argentina succeeded in reaching an agreement with more than 92 per cent of its creditors, which agreed to take an approximately 70 per cent “haircut” on their bond holdings. 20. A group representing 1.6 per cent of bondholders, led by NML Capital Ltd. (a hedge fund based in the Cayman Islands),22 refused to restructure and decided to sue the country in the New York State courts for the full amount. Some of the defaulted bonds had been bought on the secondary market just before the country’s default in 2001, but most were purchased after, at bargain prices. The vulture funds allegedly paid about $48.7 million for more than $220 million in defaulted bonds soon after the default; others were purchased even after the bond exchanges of 2005 and 2010 (ibid., para. 32). 21. In November 2012, a New York District Court judge ordered Argentina to pay NML Capital and other “holdouts” in full (about $1.3 billion), an amount that may represent a profit of about 1,600 per cent.23 The court ruling was first confirmed by a decision of the United States Court of Appeals for the Second Circuit and subsequently endorsed by the Supreme Court, which stated that the country could not pay the creditors that had accepted the exchange offers until the “holdout” creditors had been paid in full. 22. These rulings represent a major departure from the traditional market/legal understanding of the pari passu clause, a common component of bond contracts.24 NML contended that the country was not granting the same treatment to the creditors that did not participate in the exchange because it had agreed only to pay its debt to the exchange bondholders.25 23. In February 2016, with a newly elected Government in office in Argentina, the United States court set a number of conditions to effectively lift the injunction and allow Argentina to service the restructured debts.26 Events accelerated from then on and in April, ceding to massive financial pressure, Argentina abruptly reversed its previous policy 22 23 24 25 26 8 Elliott Management investment fund controls NML Capital and has brought actions against Argentina and many other countries. The chief executive officer, Paul Singer, is one of the main financial backers of the Republican Party in the United States, which gives him enormous lobbying power as well as substantial political and legal support for carrying out these operations. See Kupelian, “Vulture funds”, p. 10. Letter dated 9 July from Axel Kicillof, Minister of Economy and Public Finance of Argentina, to the Financial Times. By equal step or without preference. The international financial markets have long understood that this clause protects a lender against the risk of legal subordination in favour of another creditor. See L.C. Buchheit and J.S. Pam, “The pari passu clause in sovereign debt instruments”, Emory Law Journal, vol. 53 (Special Edition, 2004), pp. 869-870. See. J. Muse-Fisher, “Starving the vultures: NML Capital v. Republic of Argentina and solutions to the problem of distressed-debt funds”, California Law Review, vol. 102, No. 6 (2014), p. 1689. Instead of providing for contractual protection against the risk of legal subordination in favour of another creditor holder of unsubordinated and unprotected debt, the pari passu clause is interpreted more broadly as providing factual preference to “holdout” creditors over the rest of creditors. “Argentina wins a victory against its hedge-fund creditors”, Economist, 21 February 2016.