(Corrects year of district court ruling in ninth paragraph)
By Nate Raymond
NEW YORK Feb 27 Argentina will seek on
Wednesday to persuade a U.S. appeals court to reverse an order
that it pay $1.3 billion to a group of dissident bondholders
stemming from the country's 2001 default, a showdown that could
have wide impact on global debt markets.
The arguments at the 2nd U.S. Circuit Court of Appeals in
New York are being closely watched amid fears of a new Argentina
debt crisis if the country must pay the so-called "holdout"
For years, the holdouts have demanded full payment after
spurning two debt exchanges. Led by Elliott Management affiliate
NML Capital Ltd and Aurelius Capital Management, they say they
are simply attempting to hold Argentina to its obligations and
that the country has plenty of reserves to pay them. (For
details, click here: )
Argentina, though, calls these investors vultures and has
vowed not to pay them. A victory by the holdouts, Argentina
argues, would harm investors who agreed to the debt
restructurings as well as banks that handle its payments. The
country also says such a ruling could make future debt crises
"unresolvable" and spur further investor litigation.
A decision against Argentina would deal a major blow to
President Cristina Fernandez. As a sign of the importance of the
court hearing, Argentina's Economy Minister Hernan Lorenzino is
planning to attend the hearing, his spokeswoman said Tuesday.
A three-judge panel is set to hear arguments from lawyers
for Argentina and for the holdouts, as well as several other
Argentina defaulted 12 years ago on about $100 billion in
sovereign debt. About 92 percent of its bonds were restructured
in 2005 and 2010, giving holders 25 cents to 29 cents on the
If ordered to pay the small group of holdout creditors,
there are fears that Argentina could default again on $24
billion in previously restructured debt.
U.S. District Judge Thomas Griesa in New York ruled in
February 2012 that Argentina violated a key provision of its
bond contracts. That provision required the country to treat all
of its creditors equally by paying the holdouts if it also paid
investors who had agreed to the two debt swap deals, the judge
In October, the 2nd Circuit largely upheld that ruling. It
is now reviewing Griesa's plan for how the payments would work.
Griesa has said the next time Argentina made an interest payment
to the exchange bondholders, it would have to pay $1.33 billion
owed to the holdouts into a court escrow account.
The appeals court is also examining treatment of Bank of New
York Mellon, which acts as trustee to the exchange
bondholders, and the impact from the ruling's injunction on
other third parties.
In their appeal, Argentina's lawyers have contended U.S.
courts do not have the authority to order a sovereign government
to turn over assets to bondholders.
But Henry Weisburg, a lawyer at Shearman & Sterling who has
followed the case, said Argentina made similar arguments during
its last hearing before the appeals court. And he also noted the
appeal will be heard by the same panel that issued the October
ruling backing Griesa.
"You have to wonder what traction they'll have the second
time around," he said of Argentina.
In court papers, lawyers for Argentina have said the country
would be willing to reopen its restructuring offer. Such a move,
though, would require legislative permission and likely be
rejected by the holdouts.
Argentina is separately awaiting a decision on whether the
court will grant a rehearing of the October decision that
required equal treatment of the holdout investors.
The U.S. government has backed that appeal, saying if the
ruling is upheld, it could undermine the ability of other
governments to negotiate future debt restructurings.
The appeals court's ultimate decision after Wednesday's
hearing could be the final word on the matter. Although the
court could end up rehearing the case or the Supreme Court could
ultimately take up the case, such reviews are rare.
The case is NML Capital Ltd et al v. Argentina, 2nd U.S.
Circuit Court of Appeals, No. 12-105.
(Reporting by Nate Raymond in New York; Additional reporting by
Hilary Burke in Buenos Aires; Editing by Martha Graybow and