Sunday, September 28, 2014

Argentina/US: Update--US District Court Judge Thomas Griesa Issues Stay, But...

According to The Latin American Tribune, US District Court Judge Thomas Griesa has granted a stay in a long-running debt case that allows Citibank to process a payment by Argentina to holders of restructured local-law government bonds, although he set another hearing in 30 days so holdout hedge funds can seek to reverse the decision and block future payments.

The stay allows Citibank’s Argentine subsidiary to avoid penalties that Buenos Aires has vowed to impose on the financial institution if it does not process a $5 million payment to be made on June 26--by Tuesday’s deadline.

Judge Griesa had issued an order in July stating that his 2012 injunction barring Argentina from making payments on the restructured debt before settling with a small group of holdout hedge funds also applies to bonds governed by local law.

But in agreeing to a temporary stay on that order at a hearing on Friday, he accepted for now Citibank’s argument that the Argentine bonds for which it is serving as trustee are governed by local law and should therefore not be affected by his simultaneous-payment ruling.

Bank of New York Mellon is the trustee for other exchange bonds not governed by Argentine law, and that institution refused to violate Griesa’s order and process a $539 million debt-service payment Buenos Aires deposited in late June.

In a separate hearing on Monday, Griesa will determine if Argentina has acted in contempt of his Manhattan court.

Argentina defaulted on roughly $100 billion in debt in December 2001--at the time the largest sovereign default in world history--amid a financial meltdown and economic depression.

More than 92% of Argentina’s creditors accepted steep haircuts in 2005 and 2010 debt re-structurings.

COMMENT: A small group of holdouts that bought Argentine debt in the wake of the 2001 default have refused to accept the swaps and are continuing to seek 100 cents on the dollar for their bonds.

Among the holdout creditors are several hedge funds, led by Elliott Management Corp.’s NML Capital Ltd unit and Aurelius Capital Management, that sued Buenos Aires in the US courts for full payment on bonds they bought at large discounts in 2002.

In 2012, Judge Griesa ordered Buenos Aires to pay the litigants more than $1.3 billion. Argentina’s appeal of the decision reached the US Supreme Court in June, but the justices declined to hear the challenge.

As part of that 2012 judgment, Griesa issued an injunction--based on a clause in the bonds that states that all bondholders must be treated equally--that bars Argentina from paying the exchange bondholders before settling with the holdouts.

Argentine President Cristina Fernández’s administration has refused to settle with the holdouts, saying full payment to the hedge funds would lead other holdout bondholders to demand the same, creating a potential liability of some $15 billion, equivalent to roughly half of Argentina’s foreign-exchange reserves.

The origins of the debt problem go back to Argentina’s 1976-1983 military regime, which presided over a 465% expansion in public indebtedness.

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