U.S. moves to back Argentina in defaulted debt row

NEW YORK Thu Dec 13, 2012 6:53pm EST

NEW YORK Dec 13 (Reuters) - The U.S. government moved to support Argentina on Thursday in its bid to sway an appeals court to reconsider a ruling that would force the country to pay "holdout" creditors owning bonds in default since 2002.

In October, the 2nd U.S. Circuit Court of Appeals in New York upheld a lower court's decision finding that Argentina violated a bond provision requiring it to treat all creditors equally when it refused to pay the holdouts.

The South American country has asked for a rehearing with the appeals court on this case.

On Thursday, lawyers for the U.S. government filed a motion requesting that the 2nd Circuit allow them time to consider whether to file a friend-of-the-court brief backing Argentina's petition for a rehearing of their case.

"Any such filing would require approval by the Solicitor General of the United States," the U.S. attorneys wrote, adding that if granted they would do so by Dec. 28th.

Argentina defaulted on some $100 billion in sovereign debt during a crippling 2001-02 economic crisis. About 93 percent of bondholders accepted the country's 2005 and 2010 restructurings, but holdout investors sued for full repayment on their defaulted bonds.

The appeals court ruled that Argentina must pay the holdouts at the same time it pays the exchange bondholders. The decision surprised many investors and sent Argentine bond prices plummeting as fears of another default emerged.

U.S. government lawyers reiterated their position that the court's interpretation of the "equal treatment" clause in Argentina's defaulted bonds "may adversely affect future voluntary sovereign debt restructurings, the stability of international financial markets, and the repayment of loans extended by international financial institutions."

The U.S. government argued this point in April with an amicus brief when Argentina first appealed the original court orders made by U.S. District Court Judge Thomas Griesa in Manhattan.

The holdouts who stand to benefit in this case include Elliott Management's NML Capital Ltd and the Aurelius Capital Management funds. Both declined to comment on the U.S. motion.

Last month, Griesa ordered Argentina to deposit $1.33 billion in escrow by Dec. 15, when the country was scheduled to make a roughly $3 billion payment to the bondholders who participated in the debt exchanges.

The 2nd Circuit halted his orders a week later, however, and set out an appeals timetable through late February.

Separately on Thursday, the 2nd Circuit granted a motion by a group of exchange bondholders - including Gramercy Funds Management LLC - to consolidate their appeal of Griesa's November order with Argentina's bid for a rehearing of the 2nd Circuit's October decision.

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

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