(Photo: Ken Lund)
More than 20 years after Zaire (now the Democratic Republic of Congo) defaulted on loans from Citibank NA and other banks, a U.S. judge has ordered the poverty-stricken nation to pay a combined $69 million to two hedge funds that snatched up the country’s debt. The ruling follows a bench trial earlier this year in which attorneys at Dechert and DLA Piper argued over Congolese law and the DRC’s turbulent political history.
In a 58-page decision, U.S. District Judge Paul Engelmayer in Manhattan ruled that the DRC must pay $38.7 million to Themis Capital and $30.8 million to Des Moines Investments. About $50 million of that $69 million is interest that’s accrued since the DRC defaulted on the underlying debt in 1990.
The DRC’s lawyers at DLA Piper argued that Themis and Des Moines waited too long to bring their debt collection action. But Engelmayer rejected that defense, holding that DRC government officials agreed to restart the clock on the statute of limitations.
During the 1980s, a period of political instability in Zaire, the country missed occasional payments to Citibank, Banque Bruxelles-Lambert SA (now part of ING Group) and other creditors. In 1990, Zaire stopped making payments entirely. Under New York law, which governed aspects of the underlying agreements, the banks had until 1996 to bring suit. But government officials signed letters acknowledging the debt in 1991, 1997 and 2003, and under New York Law such an acknowledgment restarts the statute of limitations on a collection claim.
Citi, ING and the DRC’s other creditors assigned a portion of their debt to Themis and Des Moines in 2008. The assignment was relatively small—Themis and Des Moines were made successor-in-interest to $10 million and $8 million in principal, respectively. But the funds stood to collect tens of millions of dollars more in interest if they could get a court order that the DRC has to pay up. The funds brought suit in 2009, tapping Dennis Hranitzky of Dechert.
Engelmayer held a bench trial in February. According to the judge, DLA Piper’s strongest argument for the DRC was that the debt-acknowledgment letter from 2003 wasn’t valid because the officials that signed it didn’t have authority to do so. A intervening law from 2002 had stripped the officials of authority, DLA Piper’s Douglas Mateyaschuk asserted.
After carefully weighing that argument, Engelmayer rejected it in Wednesday’s ruling. He found that the 2002 decree only stripped the Congolese officials at issue of authority to take actions “with budgetary repercussions,” and that the 2003 tolling agreement wasn’t such an action.
Mateyaschuk and Hranitzky both declined to comment.