Argentina refuses to give up dispute with bond holdouts


Sun, Nov 18, 2012 - Page 13

Argentina refused late on Friday to give up its long fight against bond holdouts seeking US$1.45 billion for their piece of defaulted debt on which most other bondholders accepted steep discounts years ago as the country climbed out of an economic crisis.

US Judge Thomas Griesa gave Argentina a midnight Friday deadline to say whether it would accept his remedy and begin paying the holdouts next month.

Instead, Argentina’s government said it was not giving up its appeals. Argentina’s lawyers argued that the funds used to pay sovereign debt are immune from US court judgments and that the judge’s remedy threatens the value of trillions of dollars in debt issued by governments around the world. Those arguments were already dismissed on appeal, but Argentina is counting on the full appellate court overturning its own panel — something that rarely happens.

Argentine President Cristina Fernandez has vowed to continue paying those who accepted discounts on their bonds, while never paying a cent to billionaire Paul Singer’s NML Capital Ltd and other holdouts.

However, Griesa said that whether or not Argentina appeals, he is determined to force the Fernandez government to comply with his remedy, which is to pay the holdouts an equal amount whenever it makes payments to restructured debtholders. The next such payments, totaling more than US$3 billion, are due next month, and NML told the judge this week that its US$1.45 billion should also be paid, in full.

Argentina’s filing, which essentially ignores the judge’s remedy in hopes of overturning it on appeal, will raise even more uncertainty in a bond market that has already devalued Argentine debt by 30 percent since the judge’s remedy was upheld last month. Griesa has threatened unspecified sanctions in his effort to force Argentina to comply, including forcing the Bank of New York, which processes Argentina’s payments, to effectively become an enforcer.

One potential scenario is that Argentina would send its US$3 billion to the Bank of New York, washing its hands of what happens to the money after it leaves Argentine soil. The judge could then order the bank to pay holdouts part of that US$3 billion, effectively lowering the payments to others. Some analysts have said this would cause a technical default, effectively breaking Argentina’s promises and possibly causing another financial crisis for the country.

The Bank of New York on Friday refused to play along. It filed a response to the judge saying that its only responsibility is to process payments to restructured debtholders, not the holdouts. If it does otherwise without clear rules provided by the judge, the bank said, it also could be sued, by both sides.