(Adds details from finance secretary's trip to New York)
By Hugh Bronstein
BUENOS AIRES, Sept 4 Argentina's Senate on
Thursday passed a bill aimed at circumventing U.S. court
decisions regarding its defaulted debt by changing payment
jurisdiction, sending the proposal to the lower house Chamber of
Deputies for final approval.
The chamber, like the Senate, is controlled by government
allies who are expected to vote the bill into law. Debate in the
lower chamber is set to start next week. The Senate vote
approving the measure was 39 to 27.
President Cristina Fernandez wants to resume servicing
sovereign bonds that were restructured after Argentina's
previous default in 2002. Her government missed a coupon payment
on its restructured bonds in July, thrusting the South American
country into default.
The proposed law, which says that foreign debt can be paid
through intermediaries outside the United States, is Fernandez's
attempt at getting back on a paying basis by putting government
debt out of reach of U.S. courts that have jurisdiction over
some of the original bond contracts.
The bill would replace Bank of New York Mellon with
state-controlled bank Banco Nacion as the trustee for bond
payments. It would also allow holders of restructured bonds
governed by foreign law to swap them for paper governed by
Both moves would be in violation of U.S. court orders.
U.S. District Judge Thomas Griesa in New York has banned
Argentina from making interest payments on restructured debt
until it settles with a group of hedge funds who rejected
restructurings in 2005 and 2010 and are suing for full payment.
Griesa ordered Argentina to pay the funds $1.3 billion plus
interest. Argentina says to do so would trigger additional
demands from holdout investors and wreck the country's finances.
"Sometimes there are court decisions that cannot be
followed," said Miguel Angel Pichetto, head of the government's
Frente para la Victoria coalition in the Senate. "To pay the
vulture funds would be very dangerous."
The bill is expected to become law before Sept. 30, when the
next payment on Argentina's restructured bonds is due.
Investors stuck with more than 93 percent of Argentina's
defaulted bonds agreed to the 2005 and 2010 restructurings,
walking away with less than 30 cents on the dollar.
A small number of the roughly 7 percent of investors who
declined to participate in the 2005 and 2010 bond swaps sued for
100 percent repayment. They won favorable U.S. court rulings
that have forced Argentina into its second default in 12 years.
The funds that went to court are led by Elliott Capital
Management and Aurelius Capital Management, two major players in
the specialized realm of distressed debt investing. They are
involved in buying up the bonds of troubled lenders for pennies
on the dollar and then pushing to negotiate for profitable
payments, sometimes through the courts.
Argentina, needing cash to develop its vast Vaca Muerta
shale oil and gas formation in Patagonia, will remain unable to
issue international bonds until the case is settled.
Argentina's debt swap plan is receiving a cold reception in
New York, where Finance Secretary Pablo Lopez was meeting with
investors, Thomson Reuters' IFR reported.
Implementation faces a number of hurdles, as any third party
assisting the country in carrying out the exchange risks being
held in contempt of court. There were no reports of Lopez
meeting with the funds involved in the case.
Robert Cohen, a lawyer for Elliott unit NML Capital, spoke
with reporters about a probe into what court documents describe
as shell companies registered in Nevada. Elliott suspects the
companies are hiding $65 million in embezzled Argentine assets.
NML has scoured the world for Argentina's sovereign assets
that it can try to attach or seize. The fund subpoenaed 18 banks
last week in an effort to track down the $65 million.
Cohen said the list of banks, all of which have at least a
presence in the United States, has not been made public.
(Additional reporting by Davide Scigliuzzo of Thomson Reuters'
IFR and Daniel Bases in New York and Jorge Otaola in Buenos
Aires; Editing by Biju Dwarakanath, Chizu Nomiyama, Leslie
Adler, Matthew Lewis and Paul Simao)