UPDATE 1-U.S. fund loses appeal versus Telecom Argentina

(Updates with quote from Telecom Argentina attorney)

By Emily Chasan

NEW YORK, May 29 (Reuters) - A U.S. court on Thursday rejected an appeal by a U.S. investment fund seeking to pursue its own claims against Telecom Argentina SA (TEC2.BA: Quote, Profile, Research, Stock Buzz) (TEO.N: Quote, Profile, Research, Stock Buzz) over a 2005 debt restructuring.

In the ruling, which could have implications for other companies involved in cross-border insolvencies, the three-judge panel of the U.S. Second Circuit Court of Appeals said the company's foreign bankruptcy proceeding could be recognized in U.S. courts.

In late 2001, when Argentina was in the midst of a currency crisis, Telecom Argentina was pushed into insolvency. The company had to accept customer payments in rapidly devaluing pesos, was prohibited from raising prices, and found it was unable to support its foreign debt obligations which it had to pay in increasingly expensive foreign currency.

The company negotiated with creditors and gained court approval to complete a $2.63 billion debt exchange, using an Argentine process called the Acuerdo Preventivo Extrajudicial, or APE.

In 2005, the company filed for bankruptcy protection in U.S. bankruptcy court in Manhattan, seeking protection from U.S. creditors who had not signed off on its debt restructuring.

The Argo Fund Ltd, a U.S. investment fund which had an interest in the company's notes, did not agree to the restructuring, asserting that the APE proceeding was not valid in U.S. courts because it lacked certain protections and was not undertaken in "good faith." It sought to have its own proceedings against the company in the United States.

The bankruptcy court rejected those claims in February 2006, and the ruling was upheld on appeal later that year by the U.S. District Court in Manhattan, which said Argo could have raised its objections in Argentina's courts.