Gov’t takes case with 'vultures' down to the wire

Argentina was leaving its presentation before US Judge Thomas Griesa to the last minute at press time last night, the website Ambito.com reported quoting the Economy Ministry.

Although the deadline was midnight, Argentina is two hours ahead of Griesa’s court in New York City, giving more time for local authorities to present the papers.

However, sources linked to the case consulted by Ambito.com said there was no deadline, adding “the Judge may extend the term and even accept the submission to be made on Monday.” The sources reported this was not likely, but said it falls under the judge’s power to do so.

Little surprises were expected since the Kirchnerite administration would say that sovereign debt repayments are made outside the United States and are therefore immune to US law and seizures by holdout bondholders, as the state news agency Telam reported.

The country is fighting an October ruling by a US federal appeals court that would force the government to pay holdout creditors owning bonds that have been in default since 2002.

Last month’s ruling by the US 2nd Circuit Court of Appeals in New York said Argentina discriminated against bondholders who refused to take part in two debt restructurings as the country tried to recover from a US$ 100 billion default a decade ago.

The ruling sparked fears that US courts could inhibit debt payments to creditors who accepted terms of the restructuring, out of consideration for investors who rejected Argentina’s terms at the time. This would trigger a technical default.

President Cristina Fernández de Kirchner said recently that the country will not pay “one dollar to the vulture funds,” her term for the holdout investors. These investors buy distressed or defaulted debt and then sue in international courts to get paid in full. But she has vowed to keep making payments to other creditors.

The government would argue that the repayments were “immune to US law” because “the payment of creditors is conducted outside that country.”

“When the money arrives in New York, it already belongs to the creditors, not to Argentina,” it quoted an unnamed official source as saying.

Bank of New York Mellon, which transfers funds from the Argentine government to the country’s bond holders, was expected to file a statement on its position to Griesa’s chambers yesterday, a source familiar with the bank’s thinking on the matter told Reuters.

The bank is going to argue it is not an agent of Argentina but rather a “duty bound” indentured trustee there to enforce the rights of investors who exchanged their bonds in 2005 and 2010, the source said.

That means after Griesa addresses two technical questions set by the appeals court, BNY Mellon wants him to keep the payments frozen until the 2nd Circuit reviews and rules on his logic.

Specifically, the appeals court wants clarification on the formula for determining how much to pay the holdout investors and how the injunctions apply to third party intermediary banks such as BNY Mellon.

The deadline for parties to present their positions to Griesa was yesterday at 11:59pm. The judge is expected to make a speedy response given Argentina is due to start making US$ 3.3 billion worth of payments to exchange bondholders starting December 2 Griesa’s ruling will automatically return to the appeals court for review.

In a court filing this week, Elliott Management Corp’s NML Capital Ltd and two Aurelius Capital Management funds urged Griesa to lift his February 23 stay on payments pending appeal.

October’s ruling by the appeals court largely upheld injunctions issued in February by Griesa in favour of the holdouts, which own approximately US$1.4 billion of defaulted debt.

The holdouts warned in their argument to Griesa that terms of the swapped Argentine bonds may allow the country to circumvent the United States by using subsidiaries in London and Luxembourg to make debt payments.

Herald with Reuters, Telam, Ambito.com