Hayman’s Bass Says Argentina Bond Trustee Is Failing Investors

Aug 25, 2014 4:51 pm ET

Aug. 25 (Bloomberg) -- Kyle Bass, founder of hedge fund Hayman Capital Management LP, says Bank of New York Mellon Corp. is failing in its duties to holders of Argentine bonds by refusing to pass along debt payments.

Bass and a group of investors including George Soros’s Quantum Partners LP are suing BNY Mellon in London for failure to distribute 226 million euros ($298 million) of interest on Argentine debt. The group, which also includes Knighthead Capital Management LLC and RGY Investments LLC, holds more than 1.3 billion euros of Argentina’s euro-denominated bonds, according to Aug. 21 court documents obtained by Bloomberg News.

The lawsuit names BNY Mellon’s London unit, which the group says is required to pass along funds despite a court ruling in the U.S. that bars the trustee from doing so until Argentina has also paid holders of defaulted bonds from 2001, including billionaire Paul Singer’s hedge fund Elliott Management Corp. The ruling shouldn’t apply to debt issued outside of U.S. jurisdiction, Bass said.

“They failed to transfer the euro funds in accordance with their trust obligations,” Bass said in a telephone interview from New York. “Our interest payment is governed by U.K. law, which hasn’t ruled on this. Until there’s a similar injunction in the U.K., they owe us our interest payments.”

On June 26, Argentina deposited $539 million into an account at BNY Mellon for an interest payment due four days later, without also making a $1.5 billion payment on defaulted bonds from 2001. A judge in New York called the payment “illegal” and blocked BNY Mellon from passing the funds along. They remain at the bank’s account in Buenos Aires.

‘Without Merit’

A default was triggered July 30, after the government failed to reach a settlement with the holdouts by the end of a grace period for making the interest payments.

“The suit is without merit,” Ron Gruendl, a spokesman for New York-based BNY Mellon, said in an Aug. 22 statement. “BNY Mellon has consistently followed the binding court orders that govern its actions as trustee in this matter.”

Last week, the government sent a bill to Congress to attempt to remove BNY Mellon as trustee and continue making payments locally through state-run Banco de la Nacion Argentina.

The euro bonds due 2033 rose 0.04 cent to 76.84 cents on the euro at 1:45 p.m. in New York, according to data compiled by Bloomberg.

Bass came to prominence for successful bets against subprime mortgages before the U.S. financial crisis. While the world’s largest banks wrote off more than $80 billion in subprime losses, Bass and others racked up billions in profit.

Michael Vachon, a spokesman for Soros, didn’t immediately return an e-mail seeking comment.

--With assistance from Katherine Burton in New York and Camila Russo in Buenos Aires.