November 23, 2012 / 7:00 AM / 5 years ago

Argentina willing to go to U.S. Supreme Court in bond row

BUENOS AIRES (Reuters) - Argentina will appeal a U.S federal court ruling ordering it to pay $1.33 billion to holdout bond investors, the government said on Thursday, vowing to fight “judicial colonialism” all the way to the U.S. Supreme Court if necessary.

The stakes in the years-long legal battle were raised when New York federal judge Thomas Griesa on Wednesday ordered Argentina to immediately pay bondholders who shunned two exchanges of defaulted debt in 2005 and 2010.

As financial markets fretted about a possible new default ahead for the South American county, Economy Minister Hernan Lorenzino said the government will take the judge’s ruling to the U.S. Second Circuit Appeals Court on Monday.

Referring to the holdouts as “vultures” out to exploit Argentina’s massive 2002 sovereign default, Lorenzino said the government will go to the U.S. Supreme Court or “whatever international body that might be necessary” to press its case.

“To pay the vultures is not only unfair but illegal in terms of our internal rules,” he said. “We will continue to defend the position of Argentina in all forums and with all available legal instruments.”

Fears of a looming default on Argentine bonds sent all but the bravest investors to the exits on Thursday.

Argentine bond spreads, measuring default risk against that of safe-haven U.S. Treasury paper, grew 116 basis points wider in thin Thanksgiving trade, according to JP Morgan’s Emerging Markets Bond Index Plus

Argentina’s fiery left-leaning president, Cristina Fernandez, had vowed her government will not pay “one dollar” to the holdouts.

In his ruling, Griesa cited threats by Argentina’s leaders to defy his rulings in the decade-old dispute.

“These threats of defiance cannot go unheeded,” he wrote, ordering Argentina to pay $1.33 billion to holdouts such as Elliot Management Corp’s NML and Aurelius Capital Management by December 15.

He said the less time Argentina was given “to devise means for evasion, the more assurance there is against such evasion.”


If Griesa’s ruling is upheld by an appeals court and Argentina still refuses to pay, U.S. courts could eventually block debt payments to creditors who took part in the debt restructurings out of consideration for investors who rejected Argentina’s terms at the time.

That would trigger a technical default on approximately $24 billion worth of debt issued in the 2005 and 2010 exchanges, although Argentina has said it will keep making routine repayments and that funds deposited for creditors within the South American country cannot be seized.

Lorenzino decried Griesa’s ruling as “a kind of judicial colonialism.”

“Someone is sitting in a courtroom in a very important country making decisions that go against the laws and institutions not only of Argentina but other countries as well,” he said. “The only thing we’re missing is for Griesa to send in the Fifth Fleet.”

The litigation saga has lasted more than 10 years and now appears to be favoring the holdouts.

Fernandez’s government has consistently refused to pay bondholders who failed to swap their defaulted paper at a steep discount, or “haircut”.

But it has come under intense pressure since a U.S. appeals court upheld Griesa’s decision in February that Argentina violated equal-treatment provisions for all creditors when it chose to pay exchange bondholders and not holdouts.

NML and Aurelius, the holdouts with the largest claims on unrestructured debt, are owed approximately $1.33 billion.

“Argentina owes this and owes it now,” Griesa said in his ruling. “It should be emphasized that these are debts currently owed, not debts spaced out over future periods of time.” (Additional reporting by Daniel Bases, Nate Raymond and Andrew Longstreth in New York. Writing by Hugh Bronstein.; Editing by Kieran Murray and Christopher Wilson)

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