By Nate Raymond
NEW YORK Feb 27 Argentina signaled to a U.S.
appeals court it would not comply with any demand that it fully
pay a group of dissident bondholders, in a showdown that has
sparked fears the country could suffer its second massive debt
default in 11 years.
The 2nd U.S. Circuit Court of Appeals in New York on
Wednesday heard more than two hours of arguments from lawyers
for Argentina, the so-called holdout investors and other parties
in the closely watched case, but it made no immediate ruling.
The court is weighing whether to reverse an order that the
Argentine government pay $1.3 billion to the holdouts, led by
Elliott Management affiliate NML Capital Ltd and Aurelius
Capital Management. The court's decision could have wide impact
on global debt markets.
The court said it would deny Argentina's request for a
rehearing of an earlier appellate order in October that required
it to treat bondholders equally.
Argentina stood by the position of its government, led by
President Cristina Fernandez, that the holdouts should not be
paid in full, and that the country could end up ignoring a court
order requiring payment.
"We would not voluntarily obey such an order," Jonathan
Blackman, a lawyer for Argentina, told a three-judge panel.
He nonetheless said the country is open to a solution that
is "workable and doesn't create a terrible confrontation."
The appeal comes after U.S. District Judge Thomas Griesa in
Manhattan ruled last February that Argentina had violated its
contractual obligation to treat all creditors equally. That
meant the country would have to pay the holdouts if it also
wished to pay bondholders who agreed to two giant debt swaps.
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.
A victory by the holdouts, Argentina argues, would harm
those investors who agreed to the 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.
Circuit Judge Reena Raggi said at the hearing that a court's
role is to enforce contracts, "not to rewrite them."
She said it "hardly seems appropriate for a court not to
enforce one of its orders because a party will breach another of
As a sign of the importance of the case, Argentine Vice
President Amado Boudou, Economy Minister Hernan Lorenzino and
several other high-level Argentine officials attended the
For years, the holdouts have demanded full payment after
spurning two debt exchanges. These investors say they are simply
attempting to hold Argentina to its obligations and that the
government has plenty of reserves to pay them.
There is "no question" the country has the capacity to pay
them, Ted Olson, a lawyer for NML, told the court.
In October, the 2nd Circuit largely upheld Griesa's ruling
on equal treatment for bondholders. On Wednesday, the court said
it would not revisit that ruling, clearing the way for it to
review Griesa's plan for how the payments would be made.
Griesa had said the next time Argentina made an interest
payment to the exchange bondholders, it would have to pay $1.3
billion owed to the holdouts into a court escrow account.
Argentina defaulted 11 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
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.
The case is NML Capital Ltd et al v. Argentina, 2nd U.S.
Circuit Court of Appeals, No. 12-105.