Holdout bonds’ ruling: Argentina files a retrial petition at the US Court of Appeals
Argentina filed on Tuesday a petition for a retrial at the US Second Circuit Court of Appeals over a debt ruling that would force the country to pay holdout creditors owning bonds in default since 2002.
The court filing said Argentina is seeking a re-trail with the three-judge panel that ruled in favour of the holdouts last month as well as with the entire Second Circuit Court of Appeals.
Argentina in its brief said the earlier appellate ruling last month interpreted a “boilerplate” provision underlying trillions of dollars in debt in a way that was “inconsistent with market understanding.”
If left in place, the Second Circuit’s initial ruling “will exacerbate future sovereign debt crises by making voluntary debt restructuring essentially impossible,” Argentina argued in the brief.
Argentine bonds tied to GDP growth fell by 4.1% on Tuesday, while bonds such as the Boden 2015 lost 0.8%, the Par (which is in Pesos) fell 2% and the Pro 13, 0.8%.
An analyst explained that the reason for the fall “is that Argentina is firmly opposed to conceding any payment to the ‘vulture funds’.” Therefore investors fear that if the holdouts aren’t paid, this will cause an embargo leading to a technical default.
On Monday, President Cristina Fernández, repeated that she will continue to refuse to pay those who did not enter the debt restructuring process, which was accepted by 93% of the bondholders.
Investment fund NML Capital on Tuesday presented US judge Thomas Griesa with a note that indicated how much they demand to be paid for the bonds that did not enter the governments bond-swap deal.
The investment group is responsible for the seizure of the Libertad frigate, after presenting a lawsuit through the Ghanaian judicial system.
Last month, the US appeals court ratified the New York judge‘s verdict, which ruled that Argentina should pay all the bondholders, whether they had entered the bond-swap deal or not.
According to sources, after NML Capital presented their proposal, lawyers representing Argentina have 72 hours to formally respond to the proposal.
At a hearing last Friday, Griesa said he intended to rule before December 2, when Argentina is scheduled to make the first of three interest payments on the exchange bonds, which will total more than 3 billion dollars over the course of the month.
From Buenos Aires Argentina replied saying that the money was deposited in the Central bank and ready to be paid out to the exchange bonds.
In its presentation before the Appeals court Argentina claimed that upholding Griesa’s rulings would undermine its debt agreements, trigger a new financial crisis in the republic and make it impossible for countries including Greece and Spain to restructure their debt in the future.
However Circuit Judge Barrington Parker who wrote for the panel agreeing with Judge Griesa said that “nothing in the record supports Argentina's blanket assertion that the injunctions will plunge the Republic into a new financial and economic crisis” adding that with more than 40 billion dollars in foreign reserves, Argentina has the ability to pay the holdouts
“We hold that Argentina breached its promise,” the appellate court said, summarizing a 29-page ruling that could make it difficult for Argentina to use the US financial system unless it complies.
Griesa said any financial institution that processes Argentina's payments to the holders of restructured bonds must ensure that the holdouts are paid an equal amount to avoid violating the court's order. Effectively, this would force US banks to stop the payments unless Argentina proves it's complying with the ruling.
The appeals court sent the case back to Griesa’s court to clarify how a payment formula set by the judge is intended to work and to determine how the orders apply to intermediary banks and other third parties.