NML Seeks With Aurelius to Uphold Argentina Bond Rulings

Elliott Management Corp.’s NML Capital Fund and Aurelius Capital Management urged a federal appeals court to uphold rulings by a lower-court judge that would help creditors collect on debt that Argentina repudiated more than a decade ago.

NML Capital and Aurelius asked the U.S. Court of Appeals in New York yesterday to affirm rulings by U.S. District Judge Thomas Griesa in Manhattan, who ordered Argentina to pay the $1.3 billion claimed by bondholders in the case into escrow when it makes payments to holders of the country’s restructured debt.

Griesa also barred third parties, including banks, from helping Argentina evade its obligation to pay on the defaulted bonds. Argentina’s appeal of those rulings is scheduled to be heard by the court on Feb. 27.

Griesa’s rulings followed an Oct. 26 decision by the appeals court that Argentina can’t treat holders of its restructured debt more favorably than the so-called “hold-out” creditors including Aurelius and NML Capital, which declined to participate in two rounds of debt restructuring. Argentina defaulted on a record $95 billion in debt in 2001.

Defaulted Bondholders

In their briefs filed yesterday, NML Capital and Aurelius argued that Griesa acted within his authority when he issued an order barring Argentina from going forward with payments to holders of the restructured bonds unless it also pays the defaulted bondholders.

“Given Argentina’s undisputed financial ability to honor all of its obligations, a remedy that requires Argentina to pay appellees what they are owed whenever it pays the exchange bondholders what they are owed cannot possibly be inequitable,” NML Capital said in its filing.

Aurelius said Griesa properly identified Bank of New York Mellon Corp., the indenture trustee for the bonds, owners of the restructured bonds and clearing systems as parties that may be prevented from aiding Argentina in paying holders of the restructured bonds in violation of the court orders.

Last month, Argentina asked the appeals court to reverse Griesa’s rulings, claiming they illegally interfere with its immunity as a sovereign nation and improperly exert authority over third parties. Argentina is supported in its appeal by the American Bankers Association and holders of the restructured bonds, which filed briefs supporting the country’s legal position.

‘Self-Interested Arguments’

“Argentina rehashes the same self-interested arguments that this court rejected in its Oct. 26 decision,” NML Capital said in its filing, “most prominently, that requiring Argentina to live up to its equal treatment promise will somehow harm sovereign restructurings by other nations.”

Argentina issued the bonds beginning in 1994. Since the 2001 default, its government has refused to make any payments on principal or interest.

Argentine officials, including President Cristina Fernandez De Kirchner and Economy Minister Hernan Lorenzino, last year vowed that the Republic won’t pay what it called the “vulture funds” that are trying to collect on the defaulted bonds.

In 2005 and 2010, Argentina offered an exchange to holders of the defaulted bonds. The investors could trade for new exchange bonds, at a discount of as much as 75 percent. Holders of more than 91 percent of Argentina’s defaulted debt participated, according to the appeals court. Argentina has made all required payments on the exchange bonds while continuing to refuse payment to the holdout bondholders.

Distressed Debt

Some of the holders of the defaulted bonds bought them before they were repudiated by Argentina and have held them since. Others, including Aurelius and NML Capital, bought the bonds later, as distressed debt.

Griesa’s Nov. 21 ruling that Argentina had to pay $1.3 billion into an escrow account if it went ahead with the scheduled payments of about $3 billion sparked a rout in Argentine bonds and prompted Fitch to cut ratings on the country’s debt.

The case is NML Capital Ltd. v. Republic of Argentina, 12-00105, U.S. Court of Appeals for the Second Circuit (Manhattan).

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