A US judge threw out claims by bondholders on up to 2.21 billion dollars of Argentine funds held at the Federal Reserve Bank of New York, but criticized the country’s “continued intransigence” in refusing to pay creditors holding defaulted debt.
Argentina defaulted on roughly 100 billion in debt during the 2001-02 economic crisis. It restructured about 92% of that through swaps in 2005 and 2010, but holdout creditors are still suing to recover the full value of their bonds.
US District Judge Thomas Griesa in Manhattan said this week that bondholders Aurelius Capital Partners LP and affiliates, as well as the investor Kenneth Dart’s EM Ltd, failed to show the money held at the New York Fed could rightfully be used to satisfy their claims.
The holdouts, who have been awarded about 1.8 billion dollars of judgments in 12 cases, won an order last August to freeze the funds, which were deposited at the Fed in the accounts of Argentina’s Central Bank and Citibank. But Judge Griesa’s decision vacates that order.
“The funds are not the property of the Republic of Argentina” Griesa said, adding that the money was being held for “traditional central bank functions.”
Argentina, the Central Bank and Citibank argued that the money the bondholders had sought to seize, which was earmarked for paying creditors holding Argentina’s Boden 2012 bonds, never even passed through the New York Fed and was transferred to creditors or their custodians in Argentina.
In any case, Buenos Aires argued the funds ceased to belong to the country as soon as they were transferred over for payment to the Boden bondholders, an argument Griesa apparently backed.
The Boden 12 bonds were first issued in 2002 and the country has made regular payments on them.
Argentina has faced a decade of US litigation overseen by Griesa, which arose from its default. This has hampered efforts by Latin America’s third-largest economy to return to global capital markets.
Griesa said that while “the law and the facts” compelled his conclusion, he urged Argentina to do a better job addressing claims of holders of its defaulted debt.
“This is yet another situation growing out of the Republic’s continued intransigence in failing to honour its lawful judgment debts,” he wrote. “The plaintiffs in these cases, in seeking to vindicate their legal rights, are not able to do so by any regular and clear-cut devices.”
Griesa has granted several billion dollars in court judgments to holdout creditors. But so far, they have not been able to collect any money, because US sovereign immunity laws protect most assets owned by a country abroad.
Last July, a federal appeals court in New York ordered the lifting of a freeze on 100 million dollars of Argentina Central Bank deposits in the United States. It said US law shields property of a foreign central bank used for traditional central banking activities, regardless of whether the bank is independent from its parent state.
The 12 cases are all in the US District Court, Southern District of New York.