April 2, 2013 / 10:56 PM / 6 years ago

UPDATE 2-US court demands Argentine bondholders address pay plan

* Holdout bondholders asked to respond by April 22

* Argentina would pay just one-sixth owed to holdouts

By Nate Raymond

NEW YORK, April 2 (Reuters) - A U.S. appeals court on Tuesday gave holders of defaulted Argentina debt three weeks to respond to the country’s proposed plan to pay them much less than the $1.33 billion they have sued to collect.

The 2nd U.S. Circuit Court of Appeals in New York directed bondholders who did not participate in Argentina’s two debt restructurings following its 2002 default to submit a response by April 22.

They are led by NML Capital Ltd, a unit of billionaire hedge fund manager Paul Singer’s Elliott Management Corp, and Aurelius Capital Management. Representatives for the funds declined to comment.

Tuesday’s brief order likely delays any definitive ruling from the appeals court until at least late April.

On Friday, Argentina submitted a payment proposal offering NML Capital and the others, which the country calls “vultures,” just one-sixth of the money they say they are owed.

An Argentina analyst with Medley Global Advisors, Ignacio Labaqui, said the court “wants to be sure about the plaintiffs’ stance regarding Argentina’s payment proposal.

“I would not say this is a good or bad sign for either side,” Labaqui said. “The court is gathering information and may be exploring the possibility of a negotiation between Argentina and the holdouts.”

The litigation arises from the country’s $100 billion sovereign debt default in 2002. Uncertainty over the case has already rattled Argentine credit markets and created fears of a new default.

A legal advisor for exchange bondholders and non-litigant holdouts, Eugenio Bruno of the Garrido law firm, said he expects “a close rejection from the plaintiffs” and “would not rule out that some of them could be opened to participate, down the road, in the exchange if it happens.”

About 92 percent of Argentina’s bonds were restructured in 2005 and 2010, with holders receiving 25 cents to 29 cents on the dollar.

But the holdouts demanded full payment, and won a victory in October when the 2nd Circuit said Argentina violated a clause in bond documents that required equal treatment of creditors.

Then in November, U.S. District Judge Thomas Griesa ordered Argentina to pay the $1.33 billion into an escrow account before making its next interest payment to creditors who participated in the restructurings.

The 2nd Circuit heard Argentina’s latest appeal on Feb. 27.

Argentina’s latest payout plan followed terms accepted by bondholders who swapped their debt in the 2010 restructuring.

Argentina said its plan has an estimated value for NML of $120.6 million, one-sixth of the $720 million it would receive under Griesa’s order. Argentina has estimated that NML paid just $48.7 million for its bonds in 2008.

The case is NML Capital Ltd et al v. Republic of Argentina, 2nd U.S. Circuit Court of Appeals, No. 12-105.

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