Argentina Bondholders Reject Plan to Pay Defaulted Debt

Holders of Argentina’s defaulted debt, led by billionaire Paul Singer’s Elliott Management Corp. and its NML Capital Ltd. unit, rejected the nation’s proposal to force them to take a sharp discount on their bonds.

The bondholders, who claim they’re owed $1.47 billion in principal and interest, responded yesterday to Argentina’s proposed plan, which it made in a March 29 court filing with the federal appeals court in New York. They said the plan showed “contempt for its obligations, the laws of the U.S., and the orders of U.S. courts.”

Argentina defaulted on a record $95 billion in debt in 2001. In its filing, the country offered to replace the defaulted bonds with new ones that the bondholders claim would be worth less than 15 percent of what they’re owed.

“Argentina’s years of defiance cannot be cured by a convoluted offer to give appellees yet more Argentine IOUs worth pennies on the dollar,” the bondholders said.

The filing, which came three days before it was due, paves the way for a ruling by the appeals court in the case.

A decision forcing Argentina to pay the defaulted bondholders immediately would expose it to $43 billion in additional claims it can’t pay and trigger a new default, the government claims. Top officials have vowed never to pay the holders of its defaulted bonds, many of which bought them at a discount as distressed debt.

Won’t Obey

Argentina has said it won’t voluntarily obey a ruling that forces it to pay holders of the defaulted bonds. The nation’s legislature in 2005 passed a so-called lock law barring payment.

Argentina’s March 29 proposal was similar to offers the country made in two rounds of debt restructuring, in 2005 and 2010. The holdout creditors, who rejected the restructuring offers, have spent more than a decade trying to enforce their claims in court.

The creditors want the appeals court to uphold rulings by U.S. District Judge Thomas Griesa in Manhattan. Griesa said that Argentina must pay them the entire amount they’re owed whenever it makes a required payment to holders of its restructured debt. That ruling is on appeal before a three-judge panel of the appeals court, which heard arguments in the case in February.

The Exchange Bondholder Group, which took the deal offered by Argentina for their bonds, claimed Griesa’s rulings threaten their investment. More than 91 percent of bondholders agreed to the restructuring.

Argentina’s Finance Secretary Adrian Cosentino said he had “no idea what will happen” in the court case. He spoke while at an event in Washington, where he’s attending the spring meetings of the International Monetary Fund.

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

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