Bloomberg News

Argentina Restructured Bondholders Say Order Violates Rights

December 28, 2012

BlackRock Inc., (BLK:US) Gramercy Funds Management LLC and other investors in Argentina’s restructured bonds said an order requiring the country to pay defaulted debt threatens their rights to receive payment.

The bondholders, who hold restructured bonds the country issued in 2005 and 2010, said it is a “near certainty” that Argentina won’t make payments on any bonds if the lower-court order stands, according to papers filed today in the U.S. Court of Appeals in Manhattan.

Argentina defaulted on sovereign debt in 2001. In November, U.S. District Judge Thomas Griesa in New York issued an injunction requiring the country to pay $1.3 billion owed to holders of defaulted bonds when it makes payments on the restructured debt.

“However understandable the district court’s frustration with the Republic, it is unlawful and unconstitutional for an injunction to infringe the rights of innocent third-party creditors in this way,” lawyers for the investors in restructured debt, also called the exchange bondholders, said in the papers.

Argentina has said it doesn’t intend to pay holders of the defaulted debt who opted not to accept the country’s exchange offers of 25 to 29 cents on the dollar, according to the filing. The country’s law also prohibits the payment of defaulted debt, the exchange bondholders argued.

Exchange Bonds

If the injunction is not vacated, it is “certain” that either the country will fail to pay the exchange bonds or that the payments will be frozen, the restructured bondholders group, which holds more than $1.5 billion in debt, said in the filing.

Earlier today, Bank of New York Mellon Corp. (BK:US), trustee for restructured Argentine bonds, said in a filing to the appeals court that Griesa’s ruling would force it to violate contracts.

The bank, which is responsible for distributing payments to investors in the restructured bonds, asked the appeals court to throw out requirements imposed on it under the order. Griesa ordered BNY Mellon to help carry out the ruling by withholding funds from restructured bondholders until Argentina pays the old debt, according to the bank’s filing.

“BNY Mellon cannot help, assist or otherwise influence Argentina’s decision to make ratable payment to the plaintiffs,” BNY Mellon said in the motion, referring to the holders of defaulted debt. Meanwhile, the bank is contractually obligated to make payments to holders of restructured debt, according to the motion.

Alternatively, the bank asked that it be excused from legal liability arising out of complying with the ruling.

The case is NML Capital Ltd. v. Republic of Argentina, 12-00105, U.S. Court of Appeals for the Second Circuit (Manhattan).

To contact the reporter on this story: Christie Smythe in New York at csmythe1@bloomberg.net David McLaughlin in New York at dmclaughlin9@bloomberg.net;

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


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Companies Mentioned

  • BLK
    (BlackRock Inc)
    • $316.43 USD
    • 1.52
    • 0.48%
  • BK
    (Bank of New York Mellon Corp/The)
    • $39.48 USD
    • 0.05
    • 0.13%
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