Argentina Wins Delay of Order Forcing Bond Payment

Argentina won a delay of U.S. court orders that would have required paying holders of defaulted bonds next month when it makes about $3 billion in scheduled payments on its restructured debt.

A federal appeals court in New York yesterday postponed the effect of the rulings, issued by U.S. District Judge Thomas Griesa, pending a further order of the court. The court, which is considering Argentina’s appeal, said it will handle the case on an expedited basis, setting Feb. 27 for oral argument.

The ruling is a setback for the defaulted bondholders including billionaire hedge fund manager Paul Singer’s Elliott Management Corp., which rejected restructuring offers and are trying to collect on court judgments against Argentina.

Griesa ruled Nov. 21 that Argentina had to pay $1.3 billion, the amount claimed by holders of the defaulted debt, into an escrow account by Dec. 15 if it makes the restructured debt payments. The Griesa rulings have sparked a bond rout and caused Fitch to cut ratings on its debt.

Argentina is appealing to reverse Griesa’s rulings, which require the country to treat holders of the defaulted debt equally with holders of the restructured bonds. The country sought an emergency stay to permit it to make the December payments without making the escrow payment.

Dropping Values

Holders of the restructured debt joined Argentina’s request for an emergency stay, claiming that concern about whether Griesa’s rulings would force the country to default was causing the value of their bonds to drop. The appeals court yesterday granted their request to join in Argentina’s appeal.

“The second circuit’s order signals its understanding of the serious constitutional and equitable issues at stake,” Sean O’Shea, co-counsel with Boies Schiller & Flexner LLP for the bondholders group and Gramercy Funds Management LLC, its organizer, said in a statement.

The stay ensures that holders of the restructured debt get their payments until the court can make a final ruling, he said.

Argentine GDP warrants surged 1.90 cents at 8:07 a.m. in New York, the biggest jump this year, to 11.42 cents, according to data compiled by Bloomberg. Argentina is scheduled to make a payment of about $3 billion on the securities on Dec. 15.

Argentine dollar debt has lost 14.9 percent in November, the worst returns in emerging markets, compared to a 1.3 percent gain on average, according to JPMorgan Chase & Co.’s EMBI Global index.

The extra yield investors demand to own Argentina debt over U.S. Treasuries plunged 232 basis points, or 2.32 percentage points, the most in emerging markets, to 1,108, according to JPMorgan.

Fitch Ratings cut the rating on Argentina’s international law bonds on Nov. 27 to CC, eight levels below investment grade, from B, and on bonds sold under Argentine law to B- from B predicting a probable default after the Griesa payment deadline of Dec. 15.

The case is NML Capital Ltd. v. Republic of Argentina, 12-105, U.S. Court of Appeals for the Second Circuit (Manhattan).

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