Attrition: Death By Default


October 23, 2012: It’s rare for a navy to lose a ship to lawyers but it sometimes happens. The most recent such loss occurred in Africa, where an American financial firm (N.M.L. Capital) used a decade old bond default by Argentina to persuade a local judge to seize an Argentinian warship visiting Ghana. The three-masted ship Libertad, with 330 crew and cadets aboard, was seized on October 2nd. Argentina insists that international law prohibits the seizure of warships like this, but the Ghana court points out that the Argentinian ship is for training, powered by sail unarmed, and that the defaulted bonds allowed such seizures. The American bond holders are demanding $20 million from Argentina if they want their sailing ship back. N.M.L. Capital has $370 million worth of those bonds it is trying to collect on.

Argentina defaulted on $95 billion in government bonds in 2001, and made deals with most bond holders (in order to rebuild its international credit rating) by paying about 30 percent of the value of the defaulted bonds. Not all bondholders accepted that deal and some went to American courts to sue Argentina for the full amount of about $1.6 billion in bonds. Success in those lawsuits led N.M.L. Capital to seize Argentinean government property wherever it could.

Back in Argentina the head of the navy was fired, as was the head of the national intelligence agency (which is supposed to keep an eye on those who are still trying to collect on those old bonds). Normally the Argentinian Navy does not send its ships outside the Americas but the government is trying to encourage trade with Africa and the training ship was sent on a rare “good will” tour of African ports.


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