Burford met with silence from Milei over US$16-billion YPF judgment

On paper, it was one of the most lucrative victories ever in the field of litigation financing. Burford Capital Ltd, a niche firm, hit the jackpot along with other creditors when a judge delivered a US$16.1-billion award on claims it acquired against the Argentine government for less than US$17 million.

Then Javier Milei, a pro-business candidate, won Argentina’s presidential election, offering hope that Burford could reach a quick settlement with a government motivated to put the past behind it.

But any optimism for a settlement has long dissipated, more than a year after Milei took office. In his first public comments, the person Burford hired to facilitate talks with the government said he hasn’t had a single meeting with Argentine officials.

“There have been no talks for now with the government,” Gerardo Mato said in an interview Thursday at Bloomberg’s offices in Buenos Aires, declining to speculate as to why. “We’ve contacted the authorities at the Economy Ministry and legal authorities. No type of negotiation has been established yet.”

The ruling, a saga stemming from Argentina’s nationalisation of energy firm YPF SA more than a decade ago, risks impeding Milei’s efforts to return to capital markets and attract foreign investment. And Mato argues that without a settlement, Argentina is only digging its financial hole deeper and threatening the progress the libertarian president has made in setting a course for economic recovery. Every day, US$2 million in interest is added to the total Argentina owes, which now surpasses US$17 billion, Mato said.

Argentina’s Economy Ministry didn’t respond to a request for comment on Mato’s remarks.

The 61-year-old is a veteran Wall Street banker who’s worked on Latin American bond deals for years, including the 2016 resolution of Argentina’s drawn-out battle with hedge-fund billionaire Paul Singer over defaulted debt. In the interview, Mato emphasised the need to reach a fair deal for both sides, saying that Burford doesn’t want the type of hostile talks Singer engaged in.

Milei has wooed Wall Street since he stormed to power 15 months ago on a crusade to free up Argentina’s tightly controlled economy and end decades of malaise. But the libertarian president has said little about the ruling, issued in September 2023 by US District Judge Loretta Preska in New York. Soon after taking office, he told a local television station Argentina would be willing to issue a bond to pay Burford — which was entitled to US$6.2 billion of the total judgment — but there’s been no progress since. Argentina appealed Preska’s ruling.

Despite Mato’s insistence that striking a deal would help Milei’s campaign to improve perceptions of Argentina among global investors, the administration continues to fight the case tooth and nail.

“The most important thing to insert Argentina into the first world is to respect the rule of law,” said Mato, an Argentine who lives in the United States. “Any negotiation by the government in this case would be extremely valued.”

But radio silence from Economy Minister Luis Caputo seems to suggest Milei’s government doesn’t share that assessment. Argentina is already attracting big investment plans in energy and mining through a programme that provides sweeping tax incentives and legal loopholes. And Caputo is also exploring Argentina’s return at the sovereign level to global debt markets.

Some investors abroad are concerned about the case impacting Argentina’s return to markets.

“Burford’s judgment against Argentina has the potential to impede Argentina’s ability to access international capital markets,” Jared Lou, a portfolio manager on the emerging markets debt team at William Blair, said before Mato’s interview. “It’s possible Burford could enforce its claim against Argentina when the proceeds of a new bond are being held in a financial institution.”

Mato said that even if Argentina moves forward by selling bonds without a settlement in the case, it could eventually be a problem. If Argentina fails to overturn the decision on appeal, it could get creative with its debt structure to avoid an embargo of accounts — a legal technicality that would likely turn off some investors.

“If we’re in a situation where the final ruling is favorable for Burford, I think that complicates Argentina’s return to international capital markets,” Mato said. Once Argentina goes to bond markets, he warned that “if you can’t do a plain vanilla structure, a standard structure, every wrinkle will cost.”

A final decision in the courts, however, may take years. The next step in the case, now in a US appeals court, would be whether there’s a hearing on technical issues before those judges make a decision. If the appeals court judges uphold Preska’s ruling, Argentina’s only legal option would be to appeal to the US Supreme Court.

Patience required

For now, Mato said, Burford doesn’t plan to aggressively pursue Argentina’s other assets. He added that Burford could accept a bond — or other securities with market structure — as a form of payment.

“The best tool that we have is patience. The tool is the judicial tool,” says Mato. “We’re waiting for the final resolution. Burford isn’t in any rush on this issue. If we negotiate before, it’ll benefit the government because it’s going to have a discount on the debt. If it happens after, they’re going to have to pay the totality of the suit.”

Burford is perhaps the best-known of a cadre of investment funds that specialise in financing lawsuits. Launched in 2009 with backing from Neil Woodford and his former fund Invesco Ltd, Burford immediately made a splash with its founders’ prestigious credentials.

Chief Executive Officer Christopher Bogart was previously general counsel for Time Warner Inc. and a litigator at elite law firm Cravath, Swaine & Moore. Co-founder Jonathan Molot is a one-time US Supreme Court clerk and Treasury Department adviser, and also a Georgetown University law professor.

The goal of firms like Burford is to identify undervalued legal claims, pay lawyers to successfully litigate them, and then take a percentage of the award.

In this case, which targets Argentina over its 2012 nationalisation of YPF, Burford acquired the claims from the original shareholders for a little less than US$17 million in 2015. At the time of Preska’s September 2023 judgment, the firm said it had paid around US$50 million in legal fees. It had also sold more than a third of its interest to other investors, mainly large hedge funds, for US$236 million.

But litigation funding has often worked better in theory than in practice.

Many of Burford’s early competitors folded. Burford itself, listed in both New York and London, came under attack in 2019 by short-seller Carson Block, whose criticisms of its business practices knocked off almost two thirds of its share price at the time. Burford later made changes to its corporate structure to address investor concerns. Shares would rocket to as high as US$16.42 after Preska’s award in the YPF case. Before the ruling, they were worth about US$7. The stock closed Thursday just above US$14.

Preska’s ruling said the government’s takeover of YPF violated company bylaws that required it to make a tender offer to all shareholders at a pre-determined price. At the time, the deputy economy minister who spearheaded the expropriation argued that the bylaws were a “bear trap,” comments frequently cited by Burford in its case.

Argentina’s stalemate with Burford comes at a crucial time for Milei. His negotiations for a new agreement with the International Monetary Fund are being closely monitored by investors and he is also trying to keep voters onside by crushing inflation before a crucial midterm election later this year.