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Argentina Barred by U.S. Judge From Planned Bond Exchange

Argentina was barred by a U.S. judge from moving ahead with President Cristina Fernandez de Kirchner’s plan to exchange restructured bonds for debt payable in her country.

U.S. District Judge Thomas Griesa in Manhattan yesterday said the plan, announced by Kirchner in a national address on Aug. 26, is “an apparent attempt to evade” his orders in a case brought against Argentina by billionaire hedge fund manager Paul Singer’s Elliott Management Corp. and other holders of the country’s defaulted bonds.

Argentina in 2001 defaulted on a record $95 billion of foreign debt. Holders of more than 90 percent of the bonds agreed to take new exchange bonds in 2005 and 2010, at a deep discount. Griesa in February issued orders barring Argentina from paying holders of the restructured debt without also paying in full holders of $1.5 billion of its defaulted bonds.

Kirchner’s plan would allow holders of the exchange bonds, which are governed by New York law, to swap them for debt governed by Argentina law. The plan’s purpose is to shield payments on the restructured debt from action by U.S. courts.

Griesa, who referred specifically to the Kirchner plan, yesterday barred Argentina from “altering or amending the processes or specific transfer mechanisms by which it makes payments on the exchange bonds, without prior approval of the court.”

Kirchner Response

Kirchner addressed the bond litigation yesterday in a speech after Griesa’s order became public.

“A sector of the U.S. judicial power wants to take us to default and not let us pay our debt?” Kirchner said. “We won’t sit with our arms crossed and Argentina will honor its commitments.”

The case was filed in 2008 by holders of the defaulted bonds, led by Elliott and Aurelius Capital Management LP.

Argentina has vowed never to pay the hedge funds and other holders of its defaulted bonds, whom the country’s leaders have called “vultures.” The legislature passed a law in 2005 barring payment of the defaulted bonds.

After Griesa issued the February orders tying payments on the exchange bonds to payment of the $1.5 billion in defaulted debt, he delayed enforcement to allow Argentina to appeal. Griesa also ordered Argentina not to “take any action to evade” his rulings before the appeals are concluded.

The federal appeals court in New York upheld Griesa’s rulings in August. Argentina is seeking U.S. Supreme Court review.

The lower court case is NML Capital Ltd. v. Republic of Argentina, 08-cv-06978, U.S. District Court, Southern District of New York (Manhattan). The appeal is NML Capital Ltd. v. Republic of Argentina, 12-00105, U.S. Court of Appeals for the Second Circuit (New York).

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