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Anonymous

Former Director at Harbour Litigation Funding

Burford Capital, Harbour Litigation, IRR's, & Asset Recovery

Burford Capital: YPF, Book Value, & Valuation

Former Investment Manager at Augusta Ventures

Burford Capital & Litigation Case Origination

Burford Capital & YPF Risk-Reward

Disclaimer: This interview is for informational purposes only and should not be relied upon as a basis for investment decisions. In Practise is an independent publisher and all opinions expressed by guests are solely their own opinions and do not reflect the opinion of In Practise.

{audio:0:00:20} Sebastian, could you take us back and layout some context to the YPF case that's going on between Burford and YPF in the Argentinian state?

{audio:0:00:30} To understand the litigation, you have to go back to the 1990s when Argentina privatized YPF. This case started seven years ago, in April 2015, but you have to understand the whole thing and the whole spectrum of Argentina's privatization program in the 1990s to properly understand where we are right now. In 1993, Argentina privatized the company. To do so, it went to the US capital markets. It launched an IPO; it raised $1 billion and it privatized the company. To do so, it had to modify part of YPF's bylaws. This is a key central issue in this case. The modification of YPF's bylaws made the company more attractive to foreign investors, is part of this case. 

{audio:0:01:29} Why am I saying this? In Argentina, YPF included two separate articles, and both articles were to protect shareholders from any other future restatization of the company, which may happen. Having said that, Argentina kept YPF a private company to 2012, when it started it was time to renationalize. The government of President Cristina Fernández de Kirchner, following her re-election campaign in October/November 2011, decided that it was time to bring the company back to the State of Argentina to the people's hands as she says, mostly due to Vaca Muerta. Vaca Muerta is a very lucrative and productive oil and gas fracking place down south in Argentina that they found in 2011. They decided it was very lucrative and they didn’t want the company to be in the hands Spanish RESPSOL, so they launched a very careful campaign to nationalize it. 

{audio:0:02:40} This case involves all the parts, all the details that we are now aware of, from the day of her elections until the day they announced nationalization in April 2012. That means that there is just not an announcement; they didn't just pop up one morning and say, we are going to nationalize. This case is about a whole lot of things going on behind the scenes. In April 2012, Argentina nationalized 51% of the company, the expropriated shares from Repsol. April 16th 2012 is a key date because Argentina claims that the nationalization did not become official until 2014, when it compensated Repsol with $5 billion worth of bonds. 

{audio:0:03:35} But Petersen and Eton Park Capital claimed that no, the nationalization was not officialized then; it officialized the minute congress voted in favor of the nationalization because at that moment, Argentina took over the company. There are a lot of examples and documents that prove that you don't have to have an official exchange of shares in order to take control of the company, so that's very important. Remember, April 2014, April 2012, because this is key to understand what's going on. 

{audio:0:04:10} Since then, in 2012, two Spanish companies, Petersen Energia Inversora and Petersen Energia, owned 25% of all YPF shares. Eton Park Capital owned almost 3%. Petersen obtained those shares with a series of loans from Wall Street Banks as well as from Repsol. A condition of those loans is that the Petersen companies were supposed to pay interest on those loans from dividends Argentina was paying shareholders from YPF. Once it nationalized, those dividends stopped coming through, Petersen companies foreclosed. They defaulted on the loans and they had to turnover to Wall Street Banks – as well as Repsol – 25% of those shares. 

{audio:0:05:06} This is when the whole case started because both in April 2015, when Petersen companies filed this law suit in New York Southern District Court – and one year later, Eton Park Capital did the same thing and then the judge consolidated both cases – they claimed that Argentina failed to launch a tender offer for the 49% of the shares that were not expropriated. This is in the bylaws; nobody denies that. I mean both sides say, it's there. Argentina, as a new controlling company or owner of YPF, was asked by YPF bylaws to launch a tender offer. It never happened. As a matter of fact, we have Argentine politicians going to congress, saying on TV that we are not going to launch a tender offer because we don't want to pay those “stupid banks overseas”. They actually said that, that's the word they used and plaintiffs used those words in the case, so I'm just giving quotes. 

{audio:0:06:19} This is when the case started – April 2015 – and it is now are seven years later. This case has received adverse ruling in the Southern District Court against Argentina, received an adverse ruling for Argentina in the second court of appeal for the second circuit, received an adverse ruling in the US Supreme Court. It's not actually an adverse ruling. Basically, the Supreme Court said, I don't want to hear this case. It went back to the New York Southern District Court – Judge Preska’s chambers – and once again got an adverse ruling. Right now, we are facing the final judgment, which is the fifth major ruling that Judge Preska can have. 

{audio:0:07:02} Those adverse rulings against Argentina and YPF were for different series of claims that we can go over if you want to, but that will be going into a lot of detail. Right now, the case is once again in Judge Preska’s chambers, and she will decide, starting June 24th, whether Argentina and YPF should be liable for damages or whether Petersen companies and Eton Park, on behalf of Burford Capital, don't have the merits to bring this case forward.

{audio:0:07:36} Argentina have accepted and admitted the fact that they didn't pay for the other 49% or even put it to tender, and the politicians were even on TV saying, we're not going to pay them, this is our business now effectively?

{audio:0:07:49} Both Petersen and Eton put out the link to the TV network where Axel Kicillof – our former Secretary of Finance and the main architect of this nationalization – went to congress and said, we're not going to organize a tender offer; we are not going to do that. They don't deny that. There are memos that the discovery found there were discussions, internally, in the government of Argentina saying that if we actually go through a tender offer, it will cost us more than $11 billion to acquire the 49% shares so they decided not to follow through.

{audio:0:08:29} Just because they didn't want to pay?

{audio:0:08:30} Exactly. Argentina, as we will discuss later on, has a long history of breaching contracts. We have a very irresponsible and reckless interpretation of international law. We have been sued time and time again by bond holders and companies. According to SEC filings, the Republic of Argentina, since the year 2000, has paid roughly $16.8 billion worth of adverse rulings. Whether we paid in bonds, in cash, or we have issued bonds to pay in cash, time and time again, we failed to comply with international law and breach contracts and we have paid dearly for doing so.

{audio:0:09:16} Do you have three hours? The type of governments that we have here in Argentina and some players in Latin America, we don't like the conservative capitalist votes, the neo liberal movements in the Northern Hemisphere that come to Argentina, take over our companies, our commodities. Whenever those governments are voted into power, they start to adopt policies that go against previous governments that were pro-market, pro-world, pro-Western companies that came to Argentina to invest in Argentina. We signed contracts with them, we awarded privatization of companies, telecommunications, railroads, YPF, oil and gas industry. Now a new government jumps in, they cancel all contracts, they default on bonds and then all those decisions lead to international proceedings in the US courts, as well as international courts, such as European courts or the International Centre for Settlement of Investment Disputes.

{audio:0:10:26} Who is in power now in Argentina versus the old government at the time?

{audio:0:10:31} The same party that expropriated YPF. Different president. Actually, the president, Cristina Fernández de Kirchner, who led the expropriation as president, is currently the Vice President of Argentina. She came back to power, not as president but as VP. The same political party that, back in 2012, expropriated YPF, is right now in power. 

{audio:0:10:57} However, it is very important to say that this case has been in the US court system for seven years. In the past seven years, we have had different governments. We have had Cristina's government, we have had a pro-market-oriented government, which is Mauricio Macri, and now we are going back to the populist party with Cristina and Alberto Fernández in power. The strategy towards this case has always been the same. It has not changed because the ideology of the government has changed. Argentine lawyers in the US have maintained the same policy, the same strategy, regardless of who is in charge in Argentina. It is not that the case has come back and forth because we have switched governments; Argentina has maintained this strategy from the very beginning, which is a good thing.

{audio:0:11:49} What are the thoughts from the people in Argentina around that government and this case or previous cases like this?

{audio:0:11:57} The privatization of YPF in the 1990s and then the nationalization of YPF in 2012, for investors, is just a shares or breach of contract issue. For Argentines, it is much more; there is corruption. In terms of these government officials involved in the nationalization and privatization, there are beneficiaries that we don't know about in this case, that are not part of this case but we know that they will benefit if Burford wins. There were a lot of families involved in YPF when it was privatized, that received money that we don't know where that money is. For us Argentines, the expropriation of YPF is more than just Burford Capital benefiting from a favorable ruling. There is a lot of history behind YPF that you guys don't know and, for us, if it rules against Argentina, it goes actually in favor of our beliefs that finally, somebody, some judge in the world, rules against the Argentine government. 

{audio:0:13:12} To be honest with you, most of Argentines want this case to go in Burford's favor. Why? Because no court in Argentina has had the guts to rule against the government since the very beginning. Finally, somebody overseas is willing to do so. Hopefully it will go that way; that's what they say here.

{audio:0:13:33} What impact could that have on the party's political power?

{audio:0:13:38} To be honest with you, none. Right now, because of Covid and because of bad decisions, this party will not be re-elected late next year, and this case will only have some sort of legal consequence to those involved, if those involved are found to be guilty of some sort of responsibilities unbecoming of a public official. That has never happened; we don't expect anybody to resign because of this ruling, if it goes against Argentina. But monetary wise, it's going to be a big thing for us.

{audio:0:14:10} Why hasn't the government settled already? Why are they pushing to the end?

{audio:0:14:13} To settle such a big case, you need congress to approve it. There is nothing written that says you need congress to approve it, however I don't want to be the finance minister of a government that signed a blank check to Burford without approval from congress because the next government would put me in jail. Any reasonable government will go through congress and approve a settlement. 

{audio:0:14:37} Argentina's congress has never been a suitable place to discuss settlement of this type of case, especially if you have to pay people overseas. I have always believed and always written about it, tweeted about it, that the responsible approach to end this litigation is through an out of court settlement. There is one major thing, the losing party will lose big. If Argentina loses, it will lose big. If Burford loses, it will lose big. Burford has a lot of interests vested in this case including, of course, its shareholders. Somebody has to bite the bullet and sit down and negotiate an out of court settlement. That has not happened and, right now, I think the time has passed.

{audio:0:15:28} Let's assume Judge Preska has been in charge of this case from the very beginning. June 23rd is the last day where both sides will present the last documents. From that moment on, starting that day, we can have a judgment any moment. Perhaps there is an audience, but Judge Preska knows this case very well; she is in a position to rule at any minute. Actually, to be honest with you, I believe she already knows how she is going to rule. She just has to type it, and it's going to be a very long judgment. 

{audio:0:16:08} If we are just three weeks away from that moment, I think starting settlement negotiations right now is going to be counterproductive, especially if your settlement negotiations have to go through congress. Remember, a judgment does not have to go through congress. If a foreign judge rules against Argentina, we are forced to pay that money without going to congress. Going through congress, it will take long negotiations and the political environment here, right now, is not suitable to discuss a settlement of this type.

{audio:0:16:44} Why was Repsol paid out years ago?

{audio:0:16:49} Because they expropriated the company, Repsol initiated a law suit in New York's Southern District Court. Argentina knew that they had to pay. It took two years to put a number to the expropriation and to avoid any political conflicts between two major trading partners. Argentina and Spain are very close because of history, tradition and culture and we didn't want to have any more problems with Spanish companies currently in Argentina, so we paid them $5 billion in bonds. The day after receiving the $5 billion in bonds, Repsol sold those bonds to US banks and they got the cash. 

{audio:0:17:31} There is some sort of rumor that we don't know about because we are only able to see 30% to 40% of all documents that have been presented in this case. There is a lot of information we don't know about, and one of those pieces of information is that Repsol is also a beneficiary of this case, should Burford win. The current ownership of this case is divided among multiple parties, including the liquidating trust in Madrid. We don't know exactly who is behind those liquidating the 30% that the Petersen liquidating trust in Madrid have. Just to summarize, both Petersen companies are in liquidating procedures in Madrid, so there is a trust handling those procedures, and that trusts owns 30% of the monetary award that this case may or may not generate.

{audio:0:18:31} Who do you think owns that 30%?

{audio:0:18:33} You're going to get me into trouble. That's part of the corruption environment that this company has been involved in Argentina for the past 30 years. It's difficult to put a number and name without actual proof.

{audio:0:18:48} But that makes it interesting because that then distorts the incentive? 

{audio:0:18:53} Are those people that may still tell the judge, okay go ahead and pay, are the same people in the government that may get paid? Yes, correct; some people may get paid. By losing, Argentina may benefit. There's no proof of that but there's a lot of rumors.

{audio:0:19:11} Which would also explain the reason they are pushing it to judgment potentially, or willing to go that way, and not settling?

{audio:0:19:19} Exactly, if you agree on a settlement, to approve that, congress, most likely, congress will require a lot of information and documents that includes names. There are people in congress that would not want those names to be revealed. Again, there are rumors. If you come here to Argentina, you talk to anybody in the street and you talk about privatization and nationalization of YPF, they will put a lot of names in bullet points. There is no confirmation that that has actually taken place. But if you did very comprehensive analysis of who owns YPF and who owns the awards of the litigation, you may find some names that are beneficiaries if we lose.

{audio:0:20:11} Just so I'm clear, in terms of why Repsol was paid and settled earlier, is that just because they litigated first and Eton Park and Petersen were later on?

{audio:0:20:20} They litigated first and they are a major trading partner of Argentina. Spain has a lot of interests here in Argentina, they own a lot of telecommunications companies, they own a lot of mining companies; it was in the best interests of Argentina to have a good diplomatic relationship with Spain. So they settled. You don't want to be in a very bad position, trading wise, with Spain because they are a major trading partner of ours.

{audio:0:20:48} Just thinking that through, let's say, for YPF, of the 100% ownership or equity, Repsol owns a chunk, Petersen and Eton Park own some. Repsol get paid but Eton Park and Petersen don't?

{audio:0:21:01} That's a good point. The expropriation law approved by congress, authorized only to expropriate those shares owned by Repsol. The expropriation law prohibited Argentina, as part of this case, from acquiring additional shares, only 51% owned by Repsol. That's why Argentina did not launch a tender offer, because it was not authorized by congress. That's actually a major part of this case. Judge Preska says, this case belongs in my court, but I will consider Argentina law, as my decision, as my judgment. That means that this court case, right now, both for Burford as well as Argentina YPF, they are making arguments assuming that Argentine law is the law that rules this case. 

{audio:0:22:03} Having said that, Argentina says look, congress voted a law and passed by congress and approved and signed by the president, saying that you can only expropriate 51%, you can only pay for 51%; you cannot call a tender offer. What is Argentina saying? My hands were tied, I could not launch a tender offer because congress only allowed me to expropriate 51%. Yes, but you should also have firstly, passed a law that you could acquire 100% of shares, which you did not. Secondly, regardless of whether congress approved you to expropriate 51%, you could have legally purchased the remaining 49%, not through expropriation but through a tender offer. That's what Burford is saying, look, come on, you guys are saying this, I agree with you, that's fine. Then Argentina is saying, my sovereign law prevents me from complying with YPF bylaws, which is also true. 

{audio:0:23:10} If you look at Argentina's public interest law and national expropriation law, Argentina can expropriate any company, free of any debt obligations and encumbrances. That means that, I expropriate 51% of YPF, knowing – because the law says so – that I'm not going to be worried about any other future obligations or debts. What is Burford saying? Look, that law, first of all, dates after the IPO in the 1990s, and secondly, you guys modified YPF bylaws in the 1990s to make it more attractive and to protect shareholders, from doing exactly what you are doing, because you told me that if you are going to do that, you are going to pay me. Now you are telling me, I forgot to tell you that there is a sovereign law that does not apply, so screw you. 

{audio:0:24:16} Burford is saying look, you guys lied to us, lied to the shareholders, because this is a simple breach of contract case. Meaning you guys should have organized a tender offer and you did not. You went onto congress, and publicly said I'm not going to launch a tender offer, and now you are claiming this sovereign immunity, because your sovereign law preempts corporate law. Burford is saying, that's not the case, and I'm proving to you why this is not the case. This is very important to understand. 

{audio:0:24:52} If you are a company or a sovereign nation that goes to the US capital markets to get financing, whether through an IPO or through debt – both Argentina and YPF have bonds issued overseas in Wall Street, and YPF has shared issued in Wall Street – you should be held accountable to the same standards as US corporates, as well as the government is currently. Argentina says look, I'm not going to be hold accountable for doing something that was in my bylaws. Burford – as well as Petersen and Eton – is saying look, if you, Judge Preska, rule in favor of Argentina, you are setting a precedent to future sovereign nations that want to expropriate US listed companies without any consequences. This is a major landmark ruling responsibility for Judge Preska, because with her ruling, if she goes in favor of Argentina, you can have Mexico, Chile, Colombia, Venezuela, expropriating US listed companies, without any consequences, leaving investors empty handed, unprotected. This is what it's all about. 

{audio:0:26:18} If she wants to go that way, go ahead. If there is a will, there is a way. If you look at Argentina's arguments, you may find enough arguments to rule, to side with Argentina. Preska can do that; I can do that. But you have to go very deep into the arguments. Burford is saying, this is a simple breach of contract; it's written there. Don't go into sovereign immunity; don't go into who had shares, why and when; don't go into when the privatization was officially over. It's just a simple breach of contract.

{audio:0:26:57} What would be the case that Preska could make to rule it in Argentina's favor?

{audio:0:27:04} She first hinted and gave Argentina the possibility to score late in the game – to throw a Hail Mary pass, as they say in the US – when she said look, this case stays here in my court, but I'm going to consider Argentina law. Having said that, Argentina went all in, in finding constitutional experts, professors, bankers and so on, that put together some sort of case to persuade Judge Preska that look judge, you said that Argentine trumps US law in this case. What is Burford, very smartly, doing? They are saying, I agree, although I don't like it, I agree with you; let's use Argentine case. Burford brought in its own experts; Argentine constitutional experts to contradict whatever Argentina's experts are saying about the interpretation. 

{audio:0:28:05} Nobody is denying that this is about Argentine law. Everybody is fighting to see how to interpret Argentine law. Argentina is saying this is black and white. Burford is saying look, Argentina law says, if you have both two laws or three or four or five laws that contradict each other, you have to find a way that they can live together, they can live harmoniously. You cannot take one law and say, it plays in my favor. You have to take all laws into consideration, put them together and interpret them in good faith. 

{audio:0:28:48} Burford is saying that Argentina is not interpreting Argentine law in good faith. They say, you guys have laws that go in your favor, you also have laws in Argentina that go against you. Your civil code says put them together. What was the intent of those contracts? And the intent of those contracts is to launch a tender offer, because it's there in Argentina's YPF bylaws.

{audio:0:29:10} Has Judge Preska been involved in any previous cases like this or against Argentina?

{audio:0:29:16} Judge Preska has inherited a ton of cases from Judge Griesa. New York Southern District Court is the place where all bondholders go to claim and request monetary awards for defaulted bonds. Since 2008, up until today, Argentina has been sued by defaulted bondholders, and Argentina has lost in every single case. Judge Preska is currently proceeding those cases. As I mentioned before, we have paid almost $17 billion in monetary awards to bondholders and companies. Almost $11 billion of those $17 billion are related to defaulted bonds that were not part of the 2005 and 2010 debt exchanges. 

{audio:0:30:06} There's a lot of US funds, as well as European funds, that did not accept the terms and conditions put forward by Argentina in those exchanges, and they were called hold outs. That means, I am going to hold out, I am not going to exchange my bonds; pay me. Argentina didn't pay. They went to New York Southern District Court chambers, requested to get paid; 10 years later they win and Argentina was forced to pay. Judge Preska was part of those rulings, is still part of those rulings, so she is very familiar with Argentina's reckless interpretation of international law.

{audio:0:30:44} She wasn't the judge but she was involved in it?

{audio:0:30:48} The previous judge passed away, so she inherited everything, so she is very familiar with these cases. Right now, she still has one case relating to Argentina and Chile PE linked bonds for $1.2 billion. Argentina issued bonds linked to the growth of its economy, both under English law as well as New York law and in both cases, both in England and in New York, there are funds suing Argentina because Argentina failed to pay bondholders whenever the activity of its economy grew past the triggered amount of GDP growth. Judge Preska is presiding the cases in New York as well as others, so she's very familiar with Argentina's modus operandi.

{audio:0:31:37} Can you bring us up to date then, because there was a big milestone yesterday? Could you maybe set the tone for Argentina's side and Burford's side from the documents released yesterday?

{audio:0:31:50} This case is in the final stages. The final stage started April 14th and is divided in three stages: April 14th, May 26th and June 23rd. Both sides, surprisingly, have told Judge Preska that they don't want to go to trial. Remember this is pre-trial; seven years of pre-trial. The trial actually has never started. Argentina has tried to dismiss this case on different grounds. It has failed miserably in each case. Now that there are no more options, there are no more alternatives to Argentina to move forward, we are getting to the end of the pre-trial process. 

{audio:0:32:34} The end of the pre-trial process includes motions for summary judgment, which is telling a judge, we don't want to go to trial; everybody knows exactly every single detail of this case. There is no point in starting the whole thing again, with a trial, because you judge and everybody else, knows every single detail of this trial. Let's do a motion for summary judgment. Summary judgment is, you guys are guilty or you guys are innocent, and there is no need to go to trial. 

{audio:0:33:06} Usually, one side asks for summary judgment, the other one not. In this case, surprisingly, both sides requested summary judgment. That means it's very unlikely that the judge will say I deny motions for summary judgment, let's go to trial. This case could go longer in time, but I believe that Judge Preska will side with either Burford or Argentina. 

{audio:0:33:35} On April 14th the first sets of documents were filed. In these documents, both sides made strong arguments to support their cases. They presented all the experts, they presented all the documents, they presented all the briefs. Most of them were private and we didn’t have access to them; some of them, we do have access. What happened yesterday, May 26th was that it was a date when both sides filed their replies to the documents filed on April 14th. June 23rd will be the final, final briefs, presented by both sides, which will make the final arguments to the judge. The closing arguments by both sides will be written documents on June 23rd. Where we are right now is the same place we were on April 14th. Argentina claims six different grounds for granting them summary judgment. I can summarize them as I did before. 

{audio:0:34:41} First of all, national law preempts corporate law. I was limited by congress from acquiring more than 51% of the shares outstanding in YPF; I was not allowed to launch a tender offer. Argentina also claims that only shareholders that had shares in April 2014 – when Argentina officialized the expropriation and when it paid Repsol $5 billion and it received the shares – were allowed to bring forward this case. Both Petersen and Eton had already either foreclosed their shares or sold them. Argentina says, these guys didn't have the shares on 2014; they cannot bring the case forward. Argentina is also saying look, there is no way I could actually go through this tender offer, because we are under Argentine law, not New York law. Argentine law says, as a sovereign, I am responsible for following local rules. Local rules say, you don't have to acquire YPF shares because sovereign law trumps local corporate law. 

{audio:0:36:25} Burford is saying, don't talk to me about sovereign law trumping corporate law, because you guys know very well that sovereign law and corporate law are part of the Argentina Civil Code. The Argentina Civil Code says that you have to honor your obligations. Your obligations, under corporate law which is part of the civil code, says that you have to call a tender offer for those shares not expropriated. Burford has presented a lot of Argentine's constitutional experts, that argue in favor, meaning that, Argentina you are wrong in claiming that, and this is why, and there is a lot of details in there. 

{audio:0:37:09} Burford say, true, there is a law that says that I should have held shares if I wanted to sue Argentina and YPF for not organizing a tender offer, but first of all, your own prospectus, your own bylaws, do not define official acquisition of shares, but they talked about control. Argentina took control of the company in 2012, and in 2012, I had the shares. Both Petersen is and Eton say, I had the shares in 2012. Nothing changed from 2012 until 2014. You guys were running the company, you didn't pay dividends and you made all the decisions. You kicked Repsol out of your board, so whenever you received the shares officially in 2014, nothing changed. However, everything changed in April 2012 when you expropriated the company. So, the official date should be April 2012. This is why I am telling you that if there is a will, there is a way. 

{audio:0:38:19} If Judge Preska, for some reason, wants to side with Argentina, this is one of the places where she says look, Argentina is right; you guys don't have the grounds or the merits on this case. But again, if you look from a plane, 35,000 feet above the ground, this is a breach of contract case. If you go deep into details, you have multiple places where you can side with Argentina, but that's what expensive lawyers are hired to do; find multiple ways to confuse the judge and persuade her, in this case, to rule in their favor. And Burford is being forced, for the past seven years, to defend each of these claims. 

{audio:0:39:12} Argentina first tried to dismiss this case on the grounds of the Foreign Sovereign Immunities Act. The US have a rule, passed in 1978, that says, whatever you as a sovereign do in my country, your guys are immune from our prosecution, except for one thing; if you are undertaking some commercial activity. Argentina's ground on the FSIA rule, was dismissed by Judge Preska because selling shares is a commercial activity. Argentina went to the appellate court, the Second Circuit, two years later; three judges from the Second Circuit suite of appeals, rejected Argentina's claim. Argentina did not stop there. They went to the Supreme Court on the same FSIA rule, and the Supreme Court said look, I don't want to hear this, and it went back to Judge Preska. 

{audio:0:40:16} Four years after the case started, Argentina once again through their lawyers, tried to dismiss this case in saying, the forum non conveniens. What is that? Look Judge Preska, we like you, but this case belongs in a different forum; it belongs in Argentina. It took one year of back and forth before the judge sided with Burford. It was then in 2020, five years later after the case has first started, that both parties agree that this case should move forward towards a trial, and during the past 18 months, two years, we have been in the process of discovery, where parties present each other all the information. More than 100,000 pages have been shared and exchanged. 

{audio:0:41:09} What I keep saying to those who request my advice on this case is, based on what we know, Burford should win, but there are a lot of things we don't know. There are a lot of people that are being deposed, interviewed. Burford's CEO has been deposed and interviewed; we don't know what's there. He cannot talk about what's there. Former YPF CEOs who were interviewed, former families in YPF were interviewed and deposed, so we don't know what's there. Perhaps there are good things, perhaps there are bad things. So based on what we know, this case should go in Burford's side, but we don’t know what the judge is going to do.

{audio:0:41:52} Has Burford changed their arguments much apart from trying to respond to Argentina's changing positions? 

{audio:0:41:59} No, Burford has always claimed, whether this is Argentine law or whether this is New York law, this is a simple breach of contact case. They have adapted their arguments based on Argentine law or based on US law, but this case goes forward through Burford the same way. However, what Burford has been forced to do is defend itself from the different arguments that Argentina is making. For the past seven years, Argentina has presented a ton of information to try to confuse the judge and Burford has, obviously, presented their own information to make sure that the judge does not dismiss the case on those grounds.

{audio:0:42:45} What was Argentina specifically saying in the documents that came out yesterday?

{audio:0:42:50} They responded to Burford's arguments presented on April 14th which is, basically, pretty much saying what I just said. Burford claims that Petersen and Eton held shares in April 2012, and they claim that April 2014 was the exact date of the official transfer of shares, and that's when the tender offer should have been launched, and you guys did not have shares. What Argentina is doing is presenting their own expert's arguments, proving that 2014 is the date. What is Burford doing? They are presenting their own arguments – a lot of arguments – and a lot of experts saying, don't give me the official exchange of hands mumbo jumbo; you guys took control of the company on this date and this is what my experts are saying. 

{audio:0:43:49} The same thing on the sovereign public law trumps corporate law; they responded to claims in either side. They also said, Burford is not beneficial owner of this Prospect. Prospect was the official vehicle that acquired the rights from Petersen to sue the Republic of Argentina. Burford is the indirect beneficial owner of this thing; Prospect belongs to Burford. They mention this in the Spanish case, and try to convince them that Burford is lying; they don't have the grounds to direct this case, because they sold this case. Burford is saying, our business is not buying or selling cases; our business is financing, and the Spanish court agrees with us, so don't give me this Prospect history. Argentina and YPF are trying to persuade the judge that they don't have the grounds to benefit from this award because they are not the official beneficial owners; somebody else is, even though that somebody else belongs to Burford. They are trying to prove every single possible way that this case should not go in their favor. 

{audio:0:45:13} In summary, Preska can find something, if she really wanted to, to argue in Argentina's favor, one of these little details about the timing, the dates, but fundamentally, the ruling would suggest or imply that any sovereign can pretty much expropriate any foreign company? 

{audio:0:45:31} Exactly. First of all, Burford is saying, these arguments are new, which is true. You had several years to bring these arguments forward, why are you bringing them right now? Which is true; Argentina never mentioned about this ownership case or anything. Burford is saying, at the very last minute, I am trying to bring experts and hire experts to prove that you guys don't have the grounds to dismiss on this case such as the dates.

{audio:0:46:02} To respond to your question, if Judge Preska wants to rule in Argentina's favor, she can find a way to do so. If there is a will, there is a way, because here there is a way. It's about interpretation of law, and judges interpret law in many different ways. It happens in England, in Argentina, in the US; it happens everywhere. If this judge wants to interpret this law to make sure that a sovereign does not have to pay up to $20 billion worth of damages, she can find a way. 

{audio:0:46:34} However, in the US as well as in Argentina – I don't know in England – whatever a judge rules, it can be used as precedent in other cases. So next year, Mexico decides to expropriate a Mexican listed company which is traded on the New York Stock Exchange. I can do that; Judge Preska says I can do that without any consequences. I don't have to reward those shareholders; go ahead, expropriate. If Judge Preska knows that her ruling is a landmark ruling, an historic ruling, and it will set the precedent for future sovereign nations that want to expropriate companies in the US, whether she will consider that or not, I don't know. Maybe she will go to trial. Maybe she will say, I don't want anything to do with this, let's go to trial, let's let a jury decide this case. She may do that; I don't think she will go that way.

{audio:0:47:31} Do you think she understands the size and the importance of that case in that framing that you just laid out?

{audio:0:47:37} Yes, because both sides made sure that she understands. Argentina says, you guys are going to bankrupt me. They didn't say it that way; Argentina has a law. Burford's experts have put together a very detailed and comprehensive analysis of YPF’s formula. Let me take a step backwards. There are many different ways to put a number to this award, in case the case moves forward with a beneficiary landmark ruling in favor of Burford Capital, Petersen and Eton. You can take Burford's secondary market transactions because Burford has sold part of this case. You can take it simply as the share values, so YPF back in 2012; you can do an average. But there's only one official formula, and that official formula is in YPF’s prospectus, YPF’s bylaws. It's a very long formula that you have to discuss which numbers you apply to, but that's the only formula that actually gives you a real number, and that formula was only created, designed for this case, back in 1990. 

{audio:0:48:50} If somebody expropriates YPF, they have to use this formula, so it's there. Using this formula, Burford has hired a very knowledgeable professor. He presented back in April 14th a long brief explaining, step by step, what are the different scenarios, different numbers, different formula, different value, to which the judge, if she rules in favor of Burford, has to go in order to award a monetary number. That number goes from $7 billion to $19 billion. It does not go below $7 billion. Argentina is saying, if you ask me to pay $7 billion or up to $20 billion, I don't have that kind of money, which is true. Burford is saying, it's a formula; it's your formula. Your government put that formula up there in 1990. It's your company that has that formula in the bylaws and the company you have expropriated, so you are saying this, not me. 

{audio:0:49:54} We can discuss what numbers should be applied from there. We can discuss if there is a penalty percentage or pre-judgment interest on an award. But right now, the formula says $7 billion to $19 billion, so both sides are already talking about a number, but not as a negotiation. They are telling the judge, this is how much you should award, which I don't think the judge will. I think the judge will grant summary judgment to, let's say, Eton Park Capital and Petersen, and she will say, both sides sit down and you guys discuss a number. I don't think the judgment, if it goes in favor or Petersen and Eton and Burford, will include a number. It will include an order for both sides to sit down and discuss the number. 

{audio:0:50:46} Because she knows that there is not one number you can put in that formula. You have to negotiate the dates, the earnings per share, the exchange rate between peso and dollar. There are a lot of variables that that formula contemplates that a judge is not in a condition or in a position to decide. They will take months to sit down together and agree on what numbers should go there before an award is given.

{audio:0:51:16} How did Repsol come to the $10 billion number that they received and then $5 billion?

{audio:0:51:22} Repsol was a different story. Repsol there was not a tender offer; Repsol was expropriation of shares. They negotiated the value of the company back then. Back then, YPF’s value was roughly $10 billion. They expropriated 51%; they received $5 billion. Right now, YPF’s market cap is $3 billion, so you are trying to discuss a judgment worth three or four times the value of the company. This is why it's a very complex scenario for Judge Preska, not to say look, this is the number. I may be wrong. If in fact Judge Preska rules in favor of Burford, she most likely will say, we use the formula, sit down, hire a mediator, come back to me with problems, and come back to me whenever you have reached a number. It will be a long process; it will be a lot of negotiations. Most likely, there will be a lot of instances when they cannot move forward and the judge will be involved. I will be very surprised if the ruling goes in Argentina's favor. I will be very surprised if the judge puts a number.

{audio:0:52:34} Would the judge put a range of numbers? 

{audio:0:52:38} No, most likely, she will say use the formula.

{audio:0:52:40} What relevance does the size of YPF today have to that case, given that it's actually against the government?

{audio:0:52:45} That's a good question. YPF and Argentina have always been the main parties, the main defendants. We have always believed that Argentina, as the majority owner, should be liable for this thing. In recent months, and starting this year, Burford has literally but very quietly, started to say look, YPF should also be liable. April 14th for the first time, Burford hired an expert saying, YPF should be liable and responsible for this thing because of these reasons. Again, yesterday they replied to YPF – because YPF was very upset about that statement – with another expert saying, this is why YPF was responsible, as the company, for making sure the new controlling partner was told that you guys should launch a tender offer. There are documents that discovery have produced of internal discussions between YPF and Burford, in some way saying, we are not going to go with a tender offer. Why is YPF so important? Because if YPF is also found to be guilty or liable in this case, the amount of money that YPF will have to pay is three or four times the size of its market cap. Right now, there is no way that either Argentina and YPF is able to pay that kind of money.

{audio:0:54:34} How do you look at that? Who do you think will be liable then between Argentina and YPF? Can they both be liable?

{audio:0:54:40} Yes, they can both be liable. Judge Preska, if she goes against Argentina, she may say, I'm just going to go against Argentina; I'm going to leave YPF out of the equation. She can also say they are both liable. I don't know how because Argentina owns 51% of YPF. 49% of the shares continue to be traded, both in Argentina, Buenos Aires Stock Exchange, as well as in New York Stock Exchange, so who is going to be liable? In any case, the state will have to pay. Whether it is done through YPF or through Argentina, the state will have to pay. 

{audio:0:55:19} The problem is, if you put YPF in the equation, its balances are going to get hurt; its shares are going to get hurt. The shareholders know that YPF is responsible for a sum of money, that regardless of whether Argentina pays or it pays, it will be in their balances, and that number will kill YPF shares. That's why it is very important whether or not to include YPF and why its market cap is relevant.

{audio:0:55:49} Let's say that Argentina loses; can they appeal or could they drag this out for another five, 10 years?

{audio:0:55:57} It's a very interesting question because remember, as I said before, Argentina has already appealed this case on different grounds, on Foreign Sovereign Immunities Act. It has appealed and re-appealed, went to the Supreme Court, and it has lost in every single case. In terms of soccer, right now, we are four nil down. Argentina has four goals against and zero in favor. If they rule against, it will be five nil. Trying to go to the court of appeal to bring this case, the opposing party will say, once again you're trying to appeal something that every single court in this country has ruled against; it will be a waste of time. However, can they appeal? They can appeal, and if they appeal, Burford will demand Judge Preska to order Argentina to put money or bonds or something in an escrow account to guarantee a payment.

{audio:0:56:56} Given that Argentina have changed their position so much and tried all these different approaches, how does that change the merit of the argument, to Judge Preska?

{audio:0:57:07} In yesterday's filings, Burford responded to your question. It said, right now, Argentina is trying firstly, to bring back the sovereign immunity issue, once again, when it has already been ruled out. Secondly, Argentina is bringing forward the ownership of the shares issue, which it has never referred to before. Argentina is telling me right now that Burford is not the beneficiary should it win, because Prospect is. Argentina is bringing forward a lot of grounds to make sure that one sticks to the wall. 

{audio:0:57:50} Based on that, Burford correctly responds to those, and Argentina also correctly responds to those. It's up to the judge to interpret who has a more convincing argument. I keep saying, Judge Preska already knows how she is going to rule. She is just letting the process follow through; she is just waiting for everybody to give the information. She is reading the information, her clerks are reading the information and they will write the judgment on the grounds of whatever. 

{audio:0:58:23} What is Argentina doing? Knowing that there is a way for her to rule in her favor, they keep introducing grounds. The share thing, the Prospect thing, the immunity thing. They keep putting forward information to make sure that, if you judge don't like this argument because you already rejected, what about this one? Burford is saying, give me a break; that's new. So what about this one? What about this one? Argentina, smartly, is doing that because Argentina is known for kicking the can down the road in every single case it has faced in international courts. But they lose most of the time. History tells us that Argentina loses in the end.

{audio:0:59:10} Why won't Preska take this to trial?

CEO of Latam Advisors LLC

Burford Capital: A History of Petersen & the YPF-related Assets

The story of YPF's expropriation and the bylaws Argentina violated 

Argentina's arguments about the timing of expropriation and sovereign vs corporate law 

The political reaction if Argentina lose the case

Challenges collecting the cash realisations if BUR wins

The precedent this could set for international law if Argentina wins 