* Legal wrangling had stirred market fear of a debt crisis
* Argentine wants to avoid paying $1.33 bln to "holdouts"
* Argentina says will make December debt payments on time
By Daniel Bases
NEW YORK, Nov 28 Argentina has won a reprieve
against having to pay $1.33 billion next month to "holdout"
investors who rejected a restructuring of its defaulted debt and
have waged a long legal battle to be paid in full.
A U.S. appeals court granted an emergency stay order on
Wednesday that gives Argentina more time to fight a debt ruling
favoring the holdout creditors and eases investor fears of a new
default as early as next month.
Last week, U.S. District Judge Thomas Griesa ordered
Argentina to deposit the $1.33 billion payment by Dec. 15 for
investors who rejected two restructurings of bonds left over
from its massive 2002 default.
Griesa's order raised the risk of a technical default on
about $24 billion worth of debt because it meant that if
Argentina sticks to its position of not paying the holdouts, it
would also be barred from paying investors who agreed to take a
severe haircut in two debt exchanges in 2005 and 2010.
Branding the holdouts as "vulture funds," the government has
vowed never to pay them and it swiftly appealed Griesa's ruling.
Argentina argued that, if left to stand, the order would
make future restructurings impossible for countries facing debt
crises because creditors would have no incentive to exchange
their bonds at a discount.
However, some legal experts said Griesa's order would not
have such broad ramifications because Argentina hurt its own
cause in refusing to pay the holdouts, and that Griesa's ruling
focused on the government's behavior in this specific case.
Griesa has often voiced frustration with Argentina in court
and was riled by recent statements from government officials
saying that the country would defy his orders.
In its decision on Wednesday, the 2nd U.S. Circuit Court of
Appeals put off until well into 2013 a ruling on whether or not
Argentina will have to pay in full the holdouts who refused to
participate in its two restructurings, which paid less than 30
cents on the dollar.
"The extension of the stay brings back rationality and due
process to a litigation that was being rushed through in a
manner that understated the importance of the huge precedent
that the district judge was seeking to set," said Vladimir
Werning, an emerging markets economist at JPMorgan in New York.
Both Argentina and bondholders who took part in the debt
exchanges filed appeals to the 2nd Circuit against Griesa's
order. The appeals court will hear oral arguments on Feb. 27.
Argentina's economy ministry said the appeal court's
decision "ensures normal performance of Argentina's debt
payments in December."
"The threat of default has been removed for now," said
Ignacio Labaqui of emerging markets consultancy Medley Global
"This is really good news for Argentina and exchange bond
holders," he added. "The ruling came faster than expected, which
sends the message that Griesa's decision may have been too
harsh, from the point of view of the appeals court."
Lead holdout investors Elliott Management Corp and Aurelius
Capital Management both declined to comment.
Lawyers for the holders of Argentina's exchanged bonds, who
will now be paid a combined $3.3 billion in December as
scheduled, welcomed the 2nd Circuit's order.
"The stay ensures that the exchange bondholders will receive
their rightful payments through December, and until the court
can carefully consider the significant issues and interests that
are involved before rendering its final ruling," Sean O'Shea, a
lawyer for a group of exchange bondholders including Gramercy
Funds Management LLC, said in a statement.