Argentina’s Euro Investors Appeal Ruling Freezing Funds

Holders of Argentina’s euro-denominated bonds said they’ll appeal a U.S. ruling barring the South American country from making interest payments on the notes until first paying $1.5 billion to a group of hedge funds.

The holders seek reversal of U.S. District Judge Thomas Griesa’s Aug. 6 ruling that a $539 million bond payment being held by Bank of New York Mellon Corp. must remain frozen until Argentina pays investors that refused its restructured debt. They filed a one-paragraph notice of appeal today in Manhattan federal court.

A series of rulings by Griesa bar Argentina from making interest payments to holders of debt it restructured after a 2001 default unless it also pays hedge funds -- led by billionaire Paul Singer’s Elliott Management Corp. -- that refused new terms and still hold the country’s defaulted bonds.

Griesa’s order -- and the failure of the two sides to reach a settlement -- led to a second default for the country last month.

The appeal by the euro bondholders comes a week after Griesa warned Argentina may be held in contempt of court if its officials don’t stop issuing false and misleading statements about the case.

The nation’s lawyers were called into court on Aug. 8 for an emergency hearing after Argentina published full-page ads in the New York Times and the Wall Street Journal accusing the court of forcing it to miss debt payments.

Frozen Money

Competing investors are now vying for access to money frozen in the Bank of New York Mellon account, including a group of Italian investors who on Aug. 7 asked a judge to force the bank to pay them more than $200 million out of the account.

Separately, Citigroup Inc.’s Argentina unit, which holds Argentina’s funds that make payments for the republic, has won an expedited appeal of Griesa’s July 28 order. The case will be argued on Sept. 18 in the federal appeals court in Manhattan.

The bank argues Griesa’s order has effectively blocked payments to custody account customers on U.S. dollar-denominated bonds governed by Argentine law. The bank sought the fast-track appeal because the next payment is due Sept. 30, according to the court filing.

Citigroup says it faces “a risk of grave sanctions” without clarification on whether it can pay the Argentine law bonds, according to the filing.

Argentina defaulted on a record $95 billion in debt in 2001. Holders of about 92 percent the debt agreed to exchange their bonds for new ones at a discount of about 70 percent in debt restructurings in 2005 and 2010. Holdouts including Singer’s NML Capital sued, seeking full payment.

Standard & Poor’s declared Argentina again in default July 30 after the government missed the deadline to pay interest on $13 billion of restructured bonds.

The case is NML Capital Ltd. v. Republic of Argentina, 08-cv-06978, U.S. District Court, Southern District of New York (Manhattan).

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