The $18 Billion Argentina-YPF-Burford Mess

What yesterday's hearing tells us

If you’ve been following the Argentina-YPF saga (and if you’re into litigation finance or investing, you absolutely should be), Wednesday’s Second Circuit oral arguments were must-see TV.

For those not familiar, this is Burford Capital’s crown jewel investment, where they bought distressed litigation claims from bankrupt Petersen Energía for what amounts to pocket change (reportedly around €15 million) and stood to collect a 37,000% return. That’s not a typo. Thirty-seven thousand percent.​

But after Wednesday’s hearing, Burford’s stock tanked 15% because the three-judge panel signaled some serious skepticism about whether this case ever belonged in a U.S. court in the first place.​

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The Setup

Back in 1993, Argentina desperately tried to convince investors it wasn’t the typical banana republic of South America raising over $1 billion on the NYSE for YPF’s IPO. But there was a problem. Investors knew Argentina’s history of nationalization and economic chaos.​

So Argentina and YPF made what seemed like an ironclad promise in the corporate bylaws that if anyone acquired more than a certain threshold of shares they had to make a tender offer to all other shareholders at a significant premium.​​

The penalty for not complying? You couldn’t vote your shares or collect dividends.​

Fast forward to 2012. President Cristina Fernández de Kirchner decides YPF needs to be renationalized. Her government expropriates 51% of the shares from Spanish oil giant Repsol, pays Repsol $5 billion in a 2014 settlement, and proceeds to completely ignore the tender offer requirement for minority shareholders.​​

The Petersen entities, which owned a large amount of YPF through a levered buyout financed by Repsol dividends, suddenly couldn’t service their debt when Argentina stopped paying dividends. They went bankrupt, and then Burford Capital scooped up the litigation claims for pennies on the dollar.​

The Core Legal Battle: Contract vs. Expropriation Law

Here’s where it gets interesting for legal special situations investors. The plaintiffs’ argument is straightforward: Argentina breached a contract. They promised to make a tender offer if they took control. They took control. They didn’t make the tender offer. Pay up.​ They won this argument in district court, but this case was obviously appealed.

But Argentina’s position is that this entire analysis misses the forest for the trees. Under Argentine law, they argue, there’s a comprehensive public law framework for expropriation that trumps any private contractual arrangements.​ This case should be in Argentina and not in US court.

Argentina argued at hearing that this issue has already been tested in their court system and that the case was dispositive in this one. In 2012, the Argentine Supreme Court case called “San Martín” involving other YPF minority shareholders who sued in commercial court to enforce the very same bylaw provisions. The Argentine Supreme Court said: nope, wrong court. This needs to go to administrative court because it’s fundamentally about public law and expropriation effects, not private contracts.​

Those San Martín plaintiffs ultimately got wrapped into the Repsol settlement, where the $5 billion payment was supposed to cover all affected parties. Argentina’s position is that was the exclusive remedy, and Petersen/Eton Park should have joined those proceedings in Argentina instead of forum-shopping in Manhattan.​

Wednesday’s Hearing: The Judges Weren’t Having It (For Argentina, Mostly)

So the key quote from this appellate hearing was the quote: “It does have a feel like this should have been in Argentina”. The judges pressed both sides on why U.S. courts should be interpreting novel questions of Argentine law involving a sovereign’s expropriation of its own national oil company.​​

Paul Clement, arguing for the plaintiffs, pushed back hard. His best argument? “You can’t raise a billion dollars on the New York Stock Exchange and then express surprise when you get sued in New York”. He pointed to the 1993 prospectus, the ADR structure, prior tender offers (by both Repsol and Petersen) that were executed in dollars on the NYSE, and even an internal Argentine government memo from February 2012 that calculated in dollars what compliance with the bylaws would cost: $11-14 billion.​

That memo is absolutely devastating for Argentina. It shows they knew exactly what the bylaws required, calculated the cost of compliance, and made a deliberate decision to ignore it and “go cheaper” by just expropriating Repsol’s stake.​

But here’s Argentina’s strongest counterargument, and it resonated with the panel: Article 28 of Argentine expropriation law says “no action by third parties may impede expropriation or its effects”. If minority shareholders could use corporate bylaws to force the government to buy them out at a massive premium during an expropriation, doesn’t that impede the expropriation?​

The Forum Non Conveniens Problem

Argentina led with forum non conveniens (the case should have been dismissed to Argentine courts).

The standard for dismissing on forum non conveniens grounds post-judgment is that you need to show substantial prejudice. Not just “we lost” prejudice, but “we couldn’t get our witnesses or documents, the process was fundamentally unfair” prejudice. Argentina couldn’t really make that showing. The experts testified. The documents were produced. There was a three day bench trial. This case has gone on for too long.

Clement noted that Eton Park is a co-plaintiff, and their forum choice gets substantial deference. Plus, when Judge Preska first denied the forum non conveniens motion years ago, there were legitimate concerns that plaintiffs’ lawyers faced criminal prosecution threats in Argentina if they showed up in court (remember what Venezuela did to Citgo execs). That prosecutorial threat later dissipated, but by then the case was too far along.​

There was some comedy gold when Argentina’s lawyer cited exactly one case where a court dismissed on forum non conveniens grounds post-judgment: a 1987 Fifth Circuit case. Clement quipped that if there were any cases from the last 38 years, we would have heard about them.​

The Damages Train Wreck

Even if Argentina loses on liability, the damages calculation is an absolute mess and potentially worth billions in adjustments.

Judge Preska calculated damages using a formula from the bylaws that referenced YPF’s net income and Class D share prices. But here’s the kicker: under the bylaws, Argentina only had to make a tender offer for Class D shares, peso-denominated shares traded on the Buenos Aires exchange, not for ADRs.​

Argentina argues that an obligation is denominated in foreign currency, you convert to dollars at the judgment date, not at some earlier performance date. The IPO prospectus specifically said tenders only needed to be “conducted for all outstanding Class D shares, not ADRs”.​

The peso has absolutely collapsed since 2012. If damages should have been calculated in pesos and then converted at the 2023 judgment date versus being calculated as if Argentina had tendered for ADRs in dollars back in 2012 the difference is measured in billions.​

Separately. Argentina’s also claimed that the applicable prejudgment interest rate under Argentine administrative law would be 0.76% (versus the roughly 8% applied by Judge Preska). That alone could shave billions off the judgment. Argentina’s team promised to submit that citation in a letter.​

YPF’s obligations

The plaintiffs also addressed that YPF separately breached the bylaws by failing to enforce Article 7H, the provision saying Argentina’s shares shouldn’t count for voting or dividends if they didn’t do the tender offer.​

YPF’s defense was actually pretty compelling. Under Argentine law, shareholders at shareholder meetings have exclusive control over substantive matters like counting votes, establishing quorums, and determining who gets to vote. YPF itself, the corporate entity, has no power to override the shareholders’ decisions at the meeting.​

It was also pointed out that the plaintiffs’ own damages expert calculated that all their damages occurred on April 16, 2012, six weeks before the June shareholder meeting, when Argentina announced the expropriation. So even if YPF breached something at the June meeting, how did that cause damages that had already occurred in April?​

What Does This Mean for Burford and Special Situations Investors?

The panel clearly has concerns about U.S. courts deciding novel questions of Argentine public law involving a sovereign expropriation. That’s appellate-speak for “we might reverse on forum non conveniens or substantive grounds”.​

Even if the plaintiffs win on liability, the damages calculation is vulnerable. The Judgment Day rule issue alone could reduce the award by billions. The interest rate issue is another few billion in play.

In 2018, a panel ruled on the Foreign Sovereign Immunities Act (FSIA) question, deciding that Argentina’s tender offer obligation under the YPF bylaws constituted a “commercial obligation” rather than a sovereign act, which meant the case could proceed despite Argentina’s sovereign immunity claims. However, that 2018 decision explicitly did not address the merits of Argentine law or any of the substantive contract claims.

Oral argument in appellate courts serve as a dynamic forum for judges to test the strength and limits of each party’s legal position through direct questioning and hypothetical scenarios, rather than simply a stage for lawyers to restate their written briefs. Judges use this time to clarify contested issues, identify weaknesses in arguments, probe the logical consequences of potential rulings, and ensure they fully understand the implications of each side’s position often pushing counsel to confront the weakest elements of their case or grapple with difficult hypotheticals.

Importantly, a judge’s questions or challenges during oral argument are not reliable signals of how the panel will ultimately rule, as they may simply be playing devil’s advocate. Reading judicial inclinations from the tenor of oral argument can be highly misleading. A judge who aggressively questions one side may actually be sympathetic to that party’s position but needs to understand how to address concerns that could undermine their preferred outcome. The adversarial testing at oral argument is designed to expose flaws and refine thinking, not to telegraph where judges will land when they deliberate in private.

With that said, the bar to completely turn over jurisdiction back to Argentina is high at this stage. Does that mean it won’t happen? No. There was very clearly an undercurrent of wanting to do that in the questioning.

If you believe the core contract claim is sound, any weakness in the judgment creates an opportunity. Burford is now trading like this case is dead. If the Second Circuit affirms even a reduced judgment that’s still a home run for Burford from their €15 million cost basis.

What Happens Next?

The court will issue a decision probably in 6-12 months. A few scenarios:

Best case for plaintiffs: The court affirms on liability and damages. Argentina owes $18 billion. Burford goes to the moon.

Middle scenarios:

Affirm on liability, remand on damages to recalculate using peso/Judgment Day rule. Award drops to $6-10 billion. Still massive, but Burford takes a hit.

Reverse and remand on some Argentine law issues. Case goes back to Judge Preska for more proceedings. Delays everything 2-3 more years.

Worst case for plaintiffs: Reverse and dismiss on forum non conveniens. Send it to Argentina. Good luck collecting anything in Argentine administrative courts against a sovereign that just told you to pound sand.

My money? I think they affirm on liability with a serious haircut on damages. The contract argument is too strong, the February 2012 memo too damning, and the ADR/NYSE nexus too real to just throw the case out entirely.

I continue to own shares in Burford, but the risks here are real. Plan accordingly.

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