The U.S. judge handling litigation over Argentina’s defaulted debt will hold an emergency hearing today after lawyers for a group of bondholders asked him whether the nation’s latest plan to avoid complying with his orders constitutes contempt of court.
U.S. District Judge Thomas Griesa in Manhattan set the hearing for 3 p.m. after lawyers representing Paul Singer’s NML Capital and other holders of bonds Argentina repudiated in 2001 called the nation’s plan to pay its restructured bonds locally a “grave affront” to his orders and asked him to consider sanctioning the South American nation.
Argentine President Cristina Fernandez de Kirchner on Aug. 19 announced that the government plans to pay its foreign debt locally, to avoid complying with orders by Griesa that require it to pay NML and the other holdouts more than $1.5 billion before it can pay holders of its restructured debt.
NML’s request comes as Griesa grapples with the legal fallout from Argentina’s latest default, the second in 13 years. The judge, who has presided over lawsuits springing from Argentina’s 2001 default for more than a decade, said a plan to pay investors outside his jurisdiction would put Argentina in defiance of U.S. law.
“I would fully expect him to find Argentina in contempt,” said Anna Gelpern, a professor at Georgetown University Law Center in Washington and an expert on government debt. What the judge can do to punish the country is less clear. While Griesa could fine Argentina, the country could simply refuse to pay, Gelpern said.
Griesa’s orders triggered a new default on the restructured debt July 30 after Argentina refused to obey his order to pay the holdouts.
Argentina’s benchmark overseas bonds due in 2033 declined 0.95 cents to 79.88 cents on the dollar as of 12:53 p.m. in New York, after dropping 2.37 cents yesterday, the most in two weeks.
Argentina defaulted on a record $95 billion of debt in 2001. Holders of about 92 percent of the debt agreed to exchange their bonds for new ones, at a loss of about 70 percent, in debt restructurings in 2005 and 2010. Holdouts including NML sued, seeking full payment.
In June, Griesa blocked Bank of New York Mellon Corp., the trustee for Argentina’s restructured debt, and other intermediaries from distributing $539 million Argentina intended for bondholders.
Fernandez said in a nationwide address that her government will introduce a bill in Congress to authorize the debt swap. Argentina plans to use its central bank to make the payments, replacing Bank of New York Mellon. Griesa has made clear that a move by Argentina to evade his orders by exchanging its debt for locally paid bonds paid would be illegal.
The case is NML Capital Ltd. v. Republic of Argentina, 08-cv-06978, U.S. District Court, Southern District of New York (Manhattan).