Argentina gets second reprieve from U.S. court on debt payment

NEW YORK Wed Dec 5, 2012 5:12am EST

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NEW YORK (Reuters) - A U.S. appeals court on Tuesday refused to order Argentina to post a security deposit as the country seeks to overturn a court ruling that it pay investors $1.33 billion on defaulted bonds.

So-called holdout investors have tried to force Argentina to deposit $250 million while the country appeals last month's order by a U.S. judge that it pay the creditors the full value of the bonds left over from a massive 2002 default.

Argentina won a reprieve last Wednesday when the U.S. Second Circuit Court of Appeals in New York said Argentina need not deposit the $1.33 billion into the escrow account by December 15 to satisfy the holdout creditors' claims.

Holdouts then filed a motion seeking a security deposit be made to show Argentina was acting in good faith with the court.

"Appellees request that this Court amend its November 28, 2012 stay order by requiring the Republic of Argentina to post security on or before December 10, 2012. It is hereby ordered that the motion is denied," the appeals court said in its ruling.

The appeals court has scheduled oral arguments in the case for February 27, 2013.

The holdouts, including Elliott Management's NML Capital Ltd and the Aurelius Capital Management funds, want full repayment on their defaulted Argentine bonds after spurning debt exchanges in 2005 and 2010 that 93 percent of bondholders accepted.

A spokesman for Elliott declined to comment on the latest ruling from the appeals court.

Prices for Argentina's dollar-denominated bonds issued during the debt swaps rose between 1.5 percent and 3.9 percent on Tuesday in local over-the-counter trade. Bond prices jumped across the board after the appeals court ruling was reported.

The cost to protect a $10 million portfolio of Argentine sovereign debt annually for five years fell to $1.7 million per year after the ruling from $1.9 million on Monday, according to data provider Markit.

Barring another attempt by holdout investors to win an order requiring a payment, Argentina looks to be in the clear to continue servicing its restructured debt without fear of court intervention.

Argentine Economy Minister Hernan Lorenzino welcomed the decision.

"It's a positive ruling," he told reporters in Buenos Aires. "It's (also) positive that the participation of interested third-parties -- not only (exchange) bondholders but also the payment intermediaries -- has been ratified."

Argentina has called the holdout creditors "vultures" and vowed never to pay them.

The latest battle stemming from Argentina's $100 billion sovereign default nearly 11 years ago centers on a 2nd Circuit decision in October that the country violated a bond provision requiring it treat all creditors equally when it paid the exchange bondholders without paying the holdouts.

December 15 is a critical day because Argentina is scheduled to pay $3 billion on warrants issued as part of the debt swaps.

This had raised fears of another default because if Argentina had refused to pay the holdouts, as was expected, U.S. courts could have disrupted payments to holders of restructured bonds handled by intermediaries such as banks and clearing houses.

Argentina next owes money on its restructured debt in March 2013.

The case is NML Capital Ltd et al v. Argentina, 2nd U.S. Circuit Court of Appeals, No. 12-105.

(Reporting by Daniel Bases and Jonathan Stempel in New York and Hilary Burke and Jorge Otaola in Buenos Aires; Editing by Chizu Nomiyama, Andrew Hay and Phil Berlowitz)

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