* Holdout creditors say not an injustice to be paid
* Argentina says case could threaten billions in debt
* US appeals court showdown set for Feb. 27
By Martha Graybow and Jonathan Stempel
NEW YORK, Jan 25 Investors who refused to join
two sovereign debt restructurings by Argentina are urging a U.S.
court to force the country to pay them, in a case whose outcome
could make it much harder for emerging market countries facing
cash crunches to borrow money.
These investors, who own Argentina bonds that have been in
default for a decade, are demanding the $1.33 billion that a
federal judge said must be paid when the South American country
makes a payment on its restructured bonds.
The demand came one month ahead of a Feb. 27 showdown before
the 2nd U.S. Circuit Court of Appeals in New York.
Argentina is seeking to have the appeals court overturn a
finding in favor of the "holdout" creditors, which are led by
NML Capital Ltd, part of a firm run by billionaire hedge fund
manager Paul Singer, and the Aurelius Capital Management funds.
But in written arguments submitted to that court on Friday,
Aurelius said Argentina must stop going "far beyond the reach of
accountability" by letting holdouts go unpaid for more than a
decade even as it pays holders of restructured bonds.
"It is hardly an injustice to have legal rulings which, at
long last, mean that Argentina must pay the debts which it
owes," Aurelius said, quoting an earlier decision in the case.
The case stems from Argentina's $100 billion debt default in
2002, and has been pursued in U.S. courts because they have
jurisdiction under Argentina's bond contracts with investors.
NML, an affiliate of Elliott Management Corp, in a separate
brief Friday said the "stability of this sophisticated market,
and voluntary restructurings in general, depends critically upon
courts' willingness to enforce all the terms in such contracts."
NOT ONE DOLLAR
Holdouts refused to take part in debt restructurings in 2005
and 2010 in which about 92 percent of the bondholders received
between 25 cents and 29 cents on the dollar.
This stance angered investors who joined the swaps, and
Argentina has called the holdouts "vultures."
The 2nd Circuit issued a key decision in October finding
that Argentina must treat all bondholders equally, rather than
allow holders of restructured debt to have priority.
That largely upheld earlier decisions by U.S. District Judge
Thomas Griesa in Manhattan, who oversees much of the litigation.
Then in November, Griesa ordered Argentina to pay $1.33
billion into escrow for the holdouts when it paid restructured
bondholders. The 2nd Circuit later put that order on hold so
Argentina could appeal.
But Argentina does not want its ability to pay holders of
restructured bonds to be conditioned on a requirement that it
pay the holdouts.
In a filing last month, Argentina argued that paying the
holdouts would threaten its ability to service $24 billion of
It said it could try to resolve the litigation by reopening
the restructuring upon legislative approval, but the holdouts
are viewed as unlikely to accept that.
NML said Friday it was "difficult to believe" Argentina
would avoid making the payment and risk another default when it
has $40 billion in reserves.
ADDRESSING SOVEREIGN DEBT CRISES
The case is seen as having broad reach, potentially impeding
the abilities of countries to respond to economic crises in the
face of resistance from creditors.
And in court papers last year, the U.S. government said that
to award full payment to the holdouts could undermine efforts to
encourage global efforts to address sovereign debt crises.
A loss for Argentina would be a setback for President
Cristina Fernandez, who is trying to avert a potential
"technical default" on tens of billions of dollars of debt. She
has said the country will not pay "one dollar" to the holdouts.
The case is NML Capital Ltd et al v. Argentina, 2nd U.S.
Circuit Court of Appeals, No. 12-105.