Bloomberg News

Argentina Won’t Evade Orders in Bond Case, Official Says

November 17, 2012

Argentina won’t evade the orders of a New York court that is considering suits by holders of the country’s defaulted bonds, an official said in court papers.

Argentina “has complied, is complying and will comply” with the terms of a March 5 order barring the country from changing the way it pays holders of its restructured debt to try to evade the court’s jurisdiction, according to a declaration filed late last night by Francisco Guillermo Eggers, director of Argentina’s National Bureau of Public Credit.

Argentina also asked U.S. District Judge Thomas Griesa to reject the bondholders’ arguments that they must be paid the full value of their bonds, plus interest, before the country can make payments to investors who agreed to accepts bonds of lower value in two debt restructurings.

The U.S. Court of Appeals in New York ruled Oct. 26 that Argentina must pay holders of the defaulted notes if it pays off on its restructured debt. Griesa is considering how to apply the ruling to third parties and setting a formula for paying holders of the defaulted bonds.

In a court conference Nov. 9, Griesa requested that the country confirm its intention to comply with his order while he considers those two issues. Holders of the defaulted bonds had cited press statements by Argentine President Cristina Fernandez de Kirchner and members of her cabinet that, they claimed, show the country is trying to evade the appeals court ruling.

Bondholders’ Demand

Holders of the defaulted bonds, who are seeking more than $1.4 billion, want Griesa to block Argentina from going forward with more than $3 billion in scheduled payments on the restructured debt next month if it continues its refusal to pay them.

Argentina argued that requiring it to pay 100 percent of the value of the defaulted bonds violates the principal that those bondholders be treated equally with restructured bondholders.

“Plaintiffs’ unprecedented demand for over one billion dollars from the fiscal reserves of a foreign state, with further demands to follow as more ‘me too’ plaintiffs pile in, had the immediate, intended effect on the market of sending it into disarray,” Argentina said in its brief. “Faced with losses already, third-party bondholders have asked the court to protect their interests.”

Third-Party Harm

Argentina also claimed that the plaintiffs’ proposed solution would harm non-parties including Bank of New York Mellon Corp. (BK:US), the trustee for holders of the restructured bonds, financial institutions tied to payments on those bonds, and registered bondholders.

Earlier yesterday, BNY Mellon told Griesa that he shouldn’t hold the bank responsible if Argentina fails to pay holders of the defaulted debt.

“BNY Mellon has no control over Argentina and no involvement in Argentina’s performance of any obligations to plaintiffs,” the bank said in a court filing yesterday. “Plaintiffs’ efforts to threaten an indenture trustee with an extraordinary citation of contempt go too far.”

Argentina defaulted on a record $95 billion in debt in 2001. In 2005 and 2010, the country offered to let holders of the defaulted bonds exchange them for new bonds at a discount more than 70 percent, according to a brief filed today by holders of the exchanged bonds. About 92 percent of the bondholders accepted the offer, they said.

Griesa said he will rule by Dec. 1 on the payment formula and the issues relating to third parties. Argentina has asked the appeals court to reconsider its Oct. 26 ruling.

The case is NML Capital Ltd. v. Republic of Argentina, 08- cv-06978, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Bob Van Voris in New York at rvanvoris@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net


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