NEW YORK, April 19 Bondholders fighting Argentina for full repayment on defaulted debt made their final plea late on Friday to a U.S. appeals court asking them to affirm prior rulings ordering a $1.33 billion payment, saying Buenos Aires continues to defy U.S. law.
The 2nd U.S. Circuit Court of Appeals in New York directed these bondholders, led by NML Capital Ltd, a unit of billionaire hedge fund manager Paul Singer's Elliott Management Corp, and Aurelius Capital Management, to submit a response by April 22 to a new Argentine payment proposal.
These investors, who refused to accept steep losses in two prior restructurings of Argentina's historic $100 billion default 11 years ago, say the last payment proposal that comprises a swap of defaulted debt for new debt is even worse than what was offered in 2005 and 2010.
"Indeed, according to Argentina's own math, those new securities would be worth less than 15 percent of what Argentina owes" on the defaulted debt, wrote the lawyers for the holdouts.
Argentina calls the likes of Elliott and Aurelius "vultures" for pursuing full payment. About 93 percent of Argentina's bonds were restructured with holders receiving 25 cents to 29 cents on the dollar.
This is "another attempt from a totally speculative position that seeks a treatment of total privilege at the cost of the 93 percent of creditors who believed in Argentina," Argentine Finance Secretary Adrian Cosentino said in a statement in response to the holdouts' latest brief.
The holdouts won a victory in October when the 2nd Circuit said Argentina violated the pari passu, or equal treatment, clause written in the covenants governing the defaulted bonds and ordered full payment.
The key element of this case hinges on an injunction placed on intermediary banks such as Bank of New York Mellon, which acts as trustee for the exchange bondholders who accepted Argentina's debt swaps, from transferring payments unless holdouts were paid at the same time.
While Argentina submitted an alternative payment formula for the holdouts, the offer was essentially under the same terms it made in the two prior rejected restructurings.
Elliott and Aurelius contend that accepting the new debt brings the danger of a renewed default becoming "particularly acute if Argentina succeeds in implementing its widely reported plan to move offshore its payments on the exchange bonds."
At stake for those who accepted Argentina's terms in 2005 and 2010 is the potential default on $24 billion worth of debt if Buenos Aires loses its appeal, is ordered to make the payment but chooses to pay no one.
Sources familiar with the thinking of lead holdout investor Elliott say the hedge fund has offered to negotiate but Argentina has never accepted their invitations to talk.
In November, U.S. District Judge Thomas Griesa ordered Argentina to pay the $1.33 billion into an escrow account before making its next interest payment to creditors who participated in the restructurings.
However, through the legal tug-of-war and appeals filed, that order remains suspended pending the 2nd Circuit's ruling, expected any time now that it has the holdouts' final response to Argentina's payment plan.
"The district court's remedy is manifestly within its broad discretion to fashion relief in equity, is fully consonant with the governing contractual agreements, and should be affirmed," the holdouts brief said on Friday.
The 2nd Circuit heard Argentina's latest appeal on Feb. 27, along with arguments from exchange bondholders and Bank of New York Mellon that they were being held hostage by the holdouts.
Argentina said its plan has an estimated value for NML of $120.6 million, one-sixth of the $720 million it would receive under Griesa's order. Argentina has estimated that NML paid just $48.7 million for its bonds in 2008.
Argentina has argued that if it is forced to pay the holdouts this would make future sovereign restructurings impossible to work out.
Moody's Investors Service, in a study published April 10, poured cold water on that argument, stating: "Sovereign bond restructurings have generally been resolved quickly, without severe creditor coordination problems and with little litigation, except for Argentina."
The case is NML Capital Ltd et al v. Republic of Argentina, 2nd U.S. Circuit Court of Appeals, No. 12-105.