Argentina will be permitted to make a one-time-only payment this week on some dollar-denominated bonds issued under that nation’s law, the U.S. judge overseeing a legal battle over defaulted bonds ruled.
U.S. District Judge Thomas Griesa in Manhattan federal court said yesterday he’ll allow the payment to go forward because bonds issued in a settlement involving the Spanish oil company Repsol SA -- where payments aren’t subject to court orders -- can’t be immediately distinguished from a group of dollar bonds issued in the country’s 2005 and 2010 debt restructurings. Payments on the latter securities can’t be made unless holdout creditors are paid at the same time.
In May, Argentina agreed to compensate Madrid-based Repsol for seizing its Argentine unit in 2012. The Repsol settlement bonds, which aren’t part of the current debt crisis, bear the same international securities identification number as the exchanged bonds, according to Citigroup Inc. As a result, the bank, whose Argentina branch acts as the bondholder custodian, is uncertain for the moment on which bonds it can release payments.
“The court cannot enjoin payment on the dollar-denominated exchange bonds without also upsetting the Repsol settlement,” Griesa said in a written order.
Argentina faces a possible bond default tomorrow as a result of rulings by Griesa that the South American nation can’t pay its restructured debt unless it also pays more than $1.5 billion to a group of hedge funds led by billionaire Paul Singer’s NML Capital, which hold its defaulted bonds. Argentinian officials have so far refused to engage in face-to-face negotiations with the hedge funds, which they refer to as “vultures.” Representatives of the country have met separately with a mediator appointed by Griesa.
A default could worsen a recession in Argentina and extend the nation’s exclusion from international credit markets.
Because of the short time remaining before July 30, when Argentina must pay what it owes, reach an agreement with its creditors or default, Griesa gave permission for the country to make the one-time payment.
“To avoid future confusion, the parties are directed to devise a way to distinguish between the Repsol bonds and the exchange bonds before the next interest payment is due,” Griesa said.
The case is NML Capital Ltd. v. Republic of Argentina, 08-cv-06978, U.S. District Court, Southern District of New York (Manhattan).