Argentina Told by Court to Provide Bond Payment Formula

Argentina was directed by a U.S. appeals court to provide a suggested formula for paying the holders of defaulted bonds that are the subject of a $1.3 billion lawsuit before the court.

The New York-based appeals court said in an order yesterday that Argentina’s lawyer, in an oral argument on Feb. 27, “appeared to propose” an alternative to the payment formula devised by a lower-court judge in the case.

In November, U.S. District Judge Thomas Griesa said Argentina must pay the entire $1.3 billion claimed by a group of creditors led by Elliott Management Corp.’s NML Capital Ltd., whenever it makes any payment on its restructured debt.

The South American nation defaulted on a record $95 billion of sovereign debt in 2001, resulting in lawsuits by many of its creditors that are pending in Griesa’s court.

The appeals court said today that Argentina must tell it by March 29 how and when it proposes to make current its payments on the defaulted bonds, the rate it proposes to pay on the defaulted bonds and any assurances it can give that Argentina’s government will take the necessary actions to make the payments.

Lock Law

Argentina’s legislature in 2005 passed a so-called lock law barring payment on the defaulted bonds. The March 29 deadline for Argentina to respond may signal the earliest date by which the court could decide the appeal.

Jonathan Blackman, a lawyer representing Argentina in the case, didn’t immediately respond to a voice-mail message seeking comment on yesterday’s order.

The newspaper El Cronista reported that Argentina may accelerate debt payments to bondholders this year to avoid the possibility the court will allow Griesa to block payments to holders of Argentina’s restructured debt. El Cronista didn’t say how it obtained the information.

Yields on notes sold under U.S. law due 2017 dropped 232 basis points, or 2.32 percentage points, to 17.66 percent at 1:01 p.m. in New York. The extra yield that investors demand to hold Argentine government dollar bonds instead of U.S. Treasuries plunged 83 basis points to 1,203 basis points, according to JPMorgan Chase & Co.’s EMBI Global index.

The lower court case is NML Capital Ltd. v. Republic of Argentina, 08-06978, 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).