Argentina Bondholders Lose Bid to Enforce Ruling Now

A U.S. appeals court in New York rejected a bid by holders of defaulted Argentina debt to immediately enforce a ruling favorable to them.

The U.S. Court of Appeals in Manhattan yesterday denied a request by holders of $1.5 billion of the defaulted bonds, led by Elliott Management Corp.’s NML Capital and Aurelius Capital Management LP, to lift a stay on enforcement of the ruling. The stay was granted to allow time for an appeal.

The court said in August it would delay the effect of the ruling until the U.S. Supreme Court decides whether to review the case. The high court last month opted not to take up an appeal of an earlier ruling concerning whether defaulted bondholders should be paid. It could still take action if an appeal of the second ruling is filed.

The ruling would force Argentina to pay holders of the defaulted bonds as ordered by a federal judge in New York.

Argentina in 2001 defaulted on a record $95 billion of foreign debt. Holders of about 91 percent of the bonds agreed to take new exchange bonds in 2005 and 2010, at a deep discount, while some holders of the defaulted debt continued to seek payment in court.

The appeals court ruled in August that the country must pay holders of the defaulted bonds when it makes a payment to investors who took the restructured debt. Argentina has said it may be forced to default on $24 billion in restructured debt if the stay isn’t maintained.

Argentine Law

Holders of the defaulted debt asked the Manhattan appeals court to lift the stay in October, arguing that Argentina was planning to evade the court’s ruling by arranging for payment of restructured bonds to be handled under Argentine law rather than under New York law.

Argentina filed a notice yesterday in federal court in Manhattan that it’s appealing an order that kept in place an injunction barring it from evading the bond payment ruling. Previously, the country said it wasn’t planning to evade court orders.

The country’s lawyers argued in court papers last month that the holders of the defaulted debt “have shown no change in circumstances warranting a reversal of the court’s decision to continue the stay pending Supreme Court review.”

The Argentine government has said it would never pay the funds, which the country’s leaders have called “vultures.” Its legislature passed a law in 2005 barring payment on the defaulted bonds.

‘Vulture Funds’

“The appeals court ruling clears doubts that vulture funds tried to install about Argentina’s proposed path to guarantee its creditors the normal service of their debt,” Finance Secretary Adrian Cosentino said in an e-mailed statement yesterday. “The decision confirms that Argentina’s legal actions are correct.”

Argentina will exercise its defense in all possible instances, Cosentino said in the statement.

The dispute has put U.S. courts in the unusual position of shaping a foreign country’s finances and has raised the possibility of a new Argentine default. In its October filing, Argentina said the court recognized that it had raised “issues of immense significance” in its appeal.

Another default “would have severely negative consequences for Argentina’s economy and its trading partners, as well as global financial institutions with substantial holdings of sovereign debt instruments,” lawyers for a group of holders of the restructured debt said in an October filing.

In August, the appeals court upheld a lower-court injunction that would bar Argentina from paying holders of the restructured bonds if it fails to pay NML, Aurelius and the other plaintiffs.

Bond Agreement

NML bought some of the defaulted bonds from investors that refused to take the country’s restructuring offers and sued to collect the full amount. NML said a clause in the bond agreement bars Argentina from treating the restructured securities more favorably than the defaulted bonds.

A federal trial judge agreed with that argument, as did the appeals court.

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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