Argentine Funds Can’t Be Seized by Bond Holders, Judge Says

A U.S. court order restraining $2.2 billion held at the Federal Reserve Bank of New York for Citibank NA and an Argentine bank was lifted by a federal judge in Manhattan.

U.S. District Judge Thomas Griesa in August ruled that funds in accounts of Banco Central de la Republica Argentina and Citibank couldn’t be transferred. Griesa said the plaintiffs, which are investment funds, had alleged the assets were for payment to holders of some Argentina bonds, known as BODEN 12.

Griesa today reversed that decision, saying no accounts of Banco Central and Citibank at the New York Fed are being used by Argentina for “commercial activity” in the U.S., and therefore can’t be seized by the plaintiffs in satisfaction of prior judgments issued by the judge.

The judgment stems from Argentina’s 2001 default on $95 billion of debt. After restructurings in 2005 and 2010, Argentina says that litigating creditors still hold about $4 billion in defaulted bonds.

In lifting the order, Griesa criticized Argentina for failing to honor what he called “its lawful judgment debts.”

“This is yet another situation growing out of the republic’s continued intransigence in failing to honor its lawful judgment debts,” Griesa said. “The plaintiffs in these cases, in seeking to vindicate their legal rights, are not able to do so by any regular and clear-cut devices. They are virtually forced to use methods of attempted recovery which are strained and uncertain.”

‘Defying Its Obligations’

Argentina “is defying its obligations under the law,” Griesa said.

Aurelius Capital Partners LP, Blue Angel Capital I LLC and EM Ltd., which own defaulted Argentine bonds, had been seeking the funds to collect on judgments awarded by Griesa. Aurelius and Blue Angel were awarded 11 final judgments against Argentina for a total of $1.2 billion, Griesa said. EM Ltd. was awarded a final judgment of about $595 million, he said.

Charles Platto, a lawyer representing EM Ltd., said he was reviewing the ruling. “I don’t have any other comment except to refer you to Judge Griesa’s remarks in his ruling as to Argentina’s continuing failure to pay its obligation,” Platto said.

While Griesa’s latest order is a victory for the government over holdout creditors, it’s a reminder that the default remains a problem for Argentina more than a decade later, said Siobhan Morden, head of Latin America strategy at Jefferies & Co.

‘Litigation Risk’

The judge’s ruling comes two days after President Barack Obama said the U.S. plans to suspend trade preferences for Argentina in retaliation for its failure to pay American companies arbitration awards related to the default.

“All of these headlines reaffirm that Argentina continues to face litigation risk and that it hasn’t normalized relations with external creditors,” Morden said. “That’s part of the reason why Argentina’s borrowing costs remain high.”

The extra yield investors demand to hold Argentina government dollar bonds instead of U.S. Treasuries is 849 basis points, the highest spread among major emerging market nations after Venezuela, according to JPMorgan Chase & Co.’s EMBI Global index.

Mark Rodgers, a spokesman for Citigroup, and Jeffrey W. Smith, a spokesman for Federal Reserve Bank of New York, didn’t return calls seeking comment about the ruling.

The cases are Aurelius Capital Partners LP v. Argentina 07-cv-2715; EM Ltd. v. Republic of Argentina, 03-CV-2507; U.S. District Court, Southern District of New York (Manhattan).

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