News Column

U.S. Judge Warns Argentina Against Debt Swap

June 22, 2014
Argentina Debt, U.S. Court

New York (EFE).- A U.S. federal judge warned Argentina that it would be violating a ruling he handed down in favor of its holdout bondholders if it goes through with a proposed new debt swap, an idea Buenos Aires floated this week as a way to make payments to holders of restructured Argentine bonds in the South American country and not in the United States.

In a brief official letter dated June 20, U.S. District Judge Thomas Griesa wrote that the proposal unveiled Tuesday by Economy Minister Axel Kicillof "is in violation of the ruling and procedures now in place in the Southern District of New York, and the Republic of Argentina is prohibited from carrying" it out.

Kicillof on Tuesday mentioned the possibility of swapping restructured bonds that are currently governed by New York law for new debt that would be under local jurisdiction.

He floated the idea a day after the U.S. Supreme Court refused to hear the Argentine government's challenge of Griesa's November 2012 U.S. court ruling,

In that decision, Griesa ordered Buenos Aires to repay more than $1.3 billion in defaulted debt to a group of hedge funds led by New York-based Elliott Management Corp.'s NML Capital Ltd unit. Including interest, the full amount owed to those litigating bondholders is roughly $1.5 billion.

Denounced by Argentina as "vulture funds," NML and other entities acquired risky Argentine bonds at high interest rates when Buenos Aires defaulted on roughly $100 billion in debt in December 2001 - the largest sovereign default in world history - amid a financial meltdown and economic depression.

Those creditors have since refused to participate in restructurings in 2005 and 2010 that saw the vast majority of holders of Argentine sovereign debt accept a steep haircut.

On Wednesday, the 2nd U.S. Circuit Court of Appeals in New York lifted its stay of an injunction issued by Griesa that bars Argentina from making a scheduled payment at month's end to holders of restructured bonds via U.S. banks unless it simultaneously makes payment in full to the holdouts.

Kicillof mentioned the potential swap as a way to avoid entering into a technical default - which would occur if Argentina does not make payment on the exchange bonds on June 30 - while also not adhering to Griesa's ruling.

Implementation of Griesa's order also would lead other holdout bondholders that were not part of the litigation to demand full repayment on the defaulted debt, according to President Cristina Fernandez's administration.

Argentina says those potential claims would bring the total owed to the holdouts to some $15 billion, equivalent to half of Argentina's foreign-exchange reserves, and push the country into default.

Fernandez said Friday that Argentina is willing to meet its obligations to holdout bondholders after this week's legal setback in the United States, but she asked for "fair and reasonable" conditions in debt negotiations. EFE


(c) 2014 EFE News Services (U.S.) Inc.

Original headline: U.S. judge warns Argentina against changing debt-payment jurisdiction

Source: EFE Ingles

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