Argentina Has Last Chance to Influence U.S. Court in Bonds Case

Argentina has what may be its last chance to influence a U.S. appeals court considering a lawsuit over the country’s attempts to avoid paying holders of its defaulted debt.

The South American nation, which defaulted on a record $95 billion in debt in 2001, faces a deadline today to submit a proposed formula to pay holders of $1.3 billion of the defaulted bonds.

Argentina’s top leaders have vowed never to pay the “vulture” investors that hold the debt. They’ll have to soften that stance or risk losing the case, said Anna Gelpern, a law professor at American University in Washington who is an expert on government debt. A compromise that would satisfy the court is still possible, though not likely, she said.

“I just think it is a very narrow window” between what the court requires and what Argentina is willing to deliver, Gelpern said. “This assumes that everybody is actually acting rationally and in good faith. Still, the window is very narrow.”

In November, U.S. District Judge Thomas Griesa said Argentina must pay the entire $1.3 billion claimed by the creditors in the lawsuit whenever it made any payment on its restructured debt. The issue was argued in front of the U.S. Court of Appeals in New York on Feb. 27.

On March 1, the appeals court ordered Argentina to provide a suggested formula for paying the creditors, led by Elliott Management Corp.’s NML Capital Ltd., which refused to take the restructured bonds at a deep discount.

Final Chance

Argentina’s lawyer, in the Feb. 27 hearing, “appeared to propose” an alternative to the payment formula devised by Griesa, according to the appeals court. The three-judge panel gave Argentina a final chance to influence its decision. The judges said they may ask the creditors to file a response before the panel rules.

The judges said Argentina must tell them how and when it proposes to make current its payments on the defaulted bonds and the rate it proposes to pay. The panel also seeks assurances that Argentina’s government will take the necessary actions to make the payments.

The panel said March 26 that it won’t grant a full-court reconsideration of its ruling in a related appeal. In that decision, the court barred Argentina from treating restructured-debt holders more favorably than holders of the repudiated debt.

The country has claimed that a ruling forcing it to pay holders of the defaulted bonds would make it vulnerable to more than $43 billion in additional claims it can’t pay and trigger a new default.

Argentina’s legislature in 2005 passed a so-called lock law barring payment on the defaulted bonds.

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).