| NEW YORK, Sept 6
NEW YORK, Sept 6 Argentina urged a U.S. appeals
court Friday to reconsider an order last month requiring it to
pay $1.33 billion in favor of hedge funds that have refused to
participate in two debt restructurings that sprang from
Argentina's 2002 default.
In a court filing, Argentina asked the 2nd U.S. Circuit
Court of Appeals in New York for a rehearing either by the
three-judge panel that issued the Aug. 23 decision or by a
larger group of 14 judges on the court.
"The decision makes grave legal errors that magnify the
error of the panel's previous unprecedented holdings,"
Argentina's lawyers wrote.
The petition for a so-called en banc hearing sets the stage
for a final attempt by Argentina to reverse a ruling that has
created concerns of a potential new debt crisis in South
America's third-largest economy.
The case, which could ultimately find itself at the U.S.
Supreme Court, stems from Argentina's $100 billion default on
its sovereign debt in 2002.
In two restructurings in 2005 and 2010, creditors holding
around 93 percent of Argentina's debt agreed to participate in
debt swaps that gave them 25 cents to 29 cents on the dollar.
But bondholders led by the hedge funds NML Capital Ltd,
which is a unit of Paul Singer's Elliott Management Corp, and
Aurelius Capital Management went to court, seeking payment in
The case was filed in New York under the terms of the
language in the bond documents.
After years of litigation, the holdout bondholders won a
major coup in October 2012, when the 2nd Circuit upheld a ruling
from earlier in the year by U.S. District Judge Thomas Griesa,
who found that Argentina violated a clause in the bond documents
requiring the equal treatment of creditors.
The court sent the case back to Griesa to determine how the
payment mechanism would function and how injunctions he issued
would apply to third parties and intermediary banks.
Griesa in November 2012 ordered Argentina to pay $1.33
billion into a court-controlled escrow account for the dissident
bondholders. The appellate court last month affirmed that
Argentina has refused to pay the holdouts in full. If it
continues to refuse, U.S. courts could enforce injunctions
blocking payment overseas to bondholders who participated in
past restructurings, setting the stage for a possible new
Implementation of the 2nd Circuit's August ruling has been
put on hold while the United State's highest court decides
whether to hear the case. Argentina's next debt payment at the
end of September is for $164 million, according to Friday's
At a hearing Tuesday, Griesa said "the plaintiffs here are
still faced with a Republic who will not pay what is required of
He added: "Hopefully, when the 2nd Circuit decision becomes
final, if the Supreme Court turns that down, that defiant
attitude will change."
But in its brief Friday, Argentina's U.S. lawyers said the
reaction by the country's officials wasn't defiance but "the
reaction any state would have to such a prospect" about the
possible impact on its debt being paid.
Argentina's Senate, at the urging of President Cristina
Fernandez, voted Wednesday to indefinitely open a bond swap that
would offer holdouts the same terms as a prior swap in
Argentina is meanwhile pursuing an appeal of the earlier 2nd
Circuit ruling in October 2012 to the U.S. Supreme Court, whose
next term starts in October.
In seeking rehearing at the 2nd Circuit, Argentina's lawyers
argued that the three-judge panel had incorrectly interpreted
the equal-treatment clause in the bond documents.
It also contended the decision contravened the Foreign
Sovereign Immunities Act, which limits when foreign countries
can be sued in U.S. courts.
The three-judge panel exceeded its powers, Argentina argued,
by finding the limited remedies open to the holdouts under FSIA
were inadequate and justified court orders to coerce it to
giving holdouts relief intended to force the country to paying
"Courts cannot use their remedial powers to override the
intent of Congress," Argentina argued.
Hours before Argentina sought rehearing by the full 2nd
Circuit, a group of creditors who participated in the debt swaps
and hold more than $1.5 billion in exchange bonds made the same
The bondholders, which include Gramercy Financial Group LLC,
warned that the injunction if upheld would likely trigger a
default on $65 billion worth of exchange bonds, creating
"devastating consequences" for the global economy and sovereign
Hearings en banc by the full appeals court are rare. From
2001 to 2010, the 2nd Circuit granted such petitions just 0.03
percent of the time, according to a study by the Federal Bar
The case is NML Capital Ltd et al v. Republic of Argentina,
2nd U.S. Circuit Court of Appeals, No. 12-105.