* Holders of restructured Argentine bonds file emergency
* With few options left, Argentina launches legal appeal
* U.S. court ruling heightens fears of imminent default
By Helen Popper and Daniel Bases
BUENOS AIRES/NEW YORK, Nov 26 Argentina on
Monday appealed a U.S. court order to pay $1.3 billion to
investors who rejected two debt restructurings tied to its 2002
sovereign debt crisis, amid fears that the country faces another
U.S. District Judge Thomas Griesa last week ordered
Argentina to deposit the money before Dec. 15 to pay the
"holdout" creditors, a move that could jeopardize payments to
bondholders who participated in the 2005 and 2010 debt swaps.
Argentina's economy ministry said late on Monday it had
filed an appeal and denounced Griesa's ruling as "an attack on
sovereignty that shows ignorance of the laws passed by our
Any change to the terms of Argentine sovereign bonds must be
approved by the country's Congress.
The ministry said that if Griesa arranged a formula offering
holdouts the same terms presented in the 2010 restructuring,
Argentina's Congress could debate it.
That proposal is unlikely to persuade the holdouts, however.
Earlier on Monday, investors holding $1 billion worth of
restructured Argentine debt filed an emergency motion in a U.S.
federal appeals court to fight the ruling, which they fear could
prevent payment on their bonds and lead to a fresh default.
About 93 percent of bondholders agreed to swap defaulted
debt from the 2002 default for new paper at a steep discount.
But holdouts, led by Elliott Management Corp's NML Capital
Ltd and Aurelius Capital Management, rejected the swaps and are
fighting for full repayment in the courts.
Griesa's order dismayed investors who took part in the two
debt swaps and fear the G20 country will now enter into
"technical default" on about $24 billion in restructured debt.
It was those holders who filed the motion on Monday in the
U.S. 2nd Circuit Court of Appeals seeking to halt Griesa's
The motion would ensure that interest payments to the
bondholders continue while the appeal is decided," said David
Boies, a lawyer representing the investors. "Exchange
bondholders agreed to take under 30 cents on the dollar to
support Argentina's debt restructuring."
Argentina's motion was filed to the same appeals court.
Aside from sparking howls from investors who participated in
the debt restructurings, Griesa's ruling was a setback for
Argentina's combative, left-leaning President Cristina
Fernandez, who calls the holdout funds "vultures" and has vowed
never to pay them.
Fernandez's decision to vilify holdout creditors, who are
loathed by most Argentines, makes payment a difficult prospect,
and a local law prohibits offering a better deal than that given
in the swaps. Doing so might expose Argentina to lawsuits from
creditors who tendered their paper.
On the other hand, another default, albeit a technical
default, would tarnish Fernandez's record on managing the
economy, deepen Argentina's isolation from global financial
markets and hit investment at a time of sluggish growth.
Some analysts fear the case's implications could stretch far
beyond Argentina and its creditors, hampering future debt
restructurings and the operation of global payment systems.
The Argentine government is due to pay exchange bondholders
at least $3.3 billion in principal and interest in December.
But if Griesa's demand for payment of the $1.3 billion into
an escrow account for holdouts is upheld by an appeals court and
Argentina still refuses to pay, U.S. courts could embargo
payments to the creditors who accepted the debt restructurings.
That would push Argentina into a technical default.
NML has more outstanding court judgments against Argentina
that are not included in this case but it is willing to
negotiate and would still consider a combination of cash and
bonds to settle the dispute, a source familiar with its position
said on condition of anonymity.
As part of the long legal battle, NML won a court order in
early October to seize an Argentine naval vessel during a visit
to Ghana, and the ship remains stranded.
The hedge fund denies Argentine accusations that it wants to
trigger a default to get a windfall on its holdings of credit
default swaps (CDS), derivatives used to insure against default.
"That would take a huge position in the CDS market to
achieve and I don't think they have an interest in doing that,"
the source said, adding that NML would receive about half the
amount that Griesa wants paid.
Negotiations or voluntary payment by Fernandez's government
appear almost impossible. Economy Minister Hernan Lorenzino
called Griesa's ruling "a kind of judicial colonialism".
Argentina's appeal asks the court to reinstate a stay on
payment to the holdouts and contests Griesa's latest ruling by
arguing that it puts future debt restructurings at risk and
endangers global financial institutions such as clearing houses
and banks acting as payment agents.
Many specialists think it unlikely that the appeals court
will reinstate the stay.
Last month, the appeals court backed the ruling by Griesa
that Argentina has discriminated against holdouts. Argentina has
requested a new hearing before all of the court's 13 judges.
Most analysts think the so-called en banc rehearing is also
unlikely to yield a different result, though some say it might
ease the impact on third-parties such as Bank of New York Mellon
, which transfers funds from the Argentine government to
the bondholders, and clearing system operators.
Griesa's ruling last week means such payment intermediaries
are subject to embargoes on funds destined for exchange
"While the situation looks very difficult for Argentina and
exchange bondholders right now, it remains possible that the
appeals court could amend Griesa's order with regard to the
application to third-party intermediaries," investment bank
Credit Suisse said last week.
"If the appeals court were to take a more moderate stance
than Griesa, it may also issue a new stay on the order."
That would buy Argentina some breathing space and a swift
rehearing is likely given the looming Dec. 15 deadline.
Beyond the appeals court, Argentina's last-remaining legal
option in the United States would be the Supreme Court.
Some legal experts think the Supreme Court could choose to
weigh in on this case because of its implications for debt
restructurings at a time of global economic turbulence.
U.S. government lawyers have backed Argentina's position on
pari passu, or equal treatment for all bondholders. They said
that Griesa's orders "could enable a single creditor to thwart
the implementation of an internationally supported restructuring
However, not everyone thinks the ramifications will be that
wide because most bonds issued since Argentina's default contain
collective action clauses that make a restructuring deal binding
on all creditors.
"The pendulum, post Argentina, has swung," said Hans Humes,
president of Greylock Capital Management. The New York-based
fund shunned the first debt swap, but accepted the same terms
five years later in 2010.
"We used to have a discussion about what a country is able
to pay and (Argentina) broke the mold and we've been forced to
sit down and listen to what they want to pay. So in the current
case maybe its swinging back in our favor a bit," he added.
Securing the U.S. Supreme Court's intervention before the
hefty payment on Argentina's growth-linked warrants is due on
Dec. 15 appears a remote prospect.
An eventual default would deepen Argentina's economic
isolation. Partly because of the legal action by the holdouts,
the country has yet to return to global credit markets almost 11
years since the economic meltdown of 2001/2002.
Paying all the outstanding defaulted bonds would cost up to
about $11 billion, equivalent to about a quarter of the foreign
currency reserves that Argentina needs to keep servicing its
debts in the absence of fresh credit.
Guillermo Nielsen, a former Argentine finance secretary who
helped oversee the 2005 bond swap, said the government should
deposit the $1.3 billion on time and keep litigating.
"A default on the new bonds must be avoided at all costs,"
he said. "The (2002) default was incredibly costly for Argentina
and this situation could end up causing a new default combined
with contempt of court."