MercoPress. South Atlantic News Agency

Judge Griesa warns Argentina on defying paying holdout bondholders

US District Judge Thomas Griesa

US District Judge Thomas Griesa told Argentina it should not even consider evading a recent ruling requiring it to pay bondholders who did not participate in two major debt restructurings after the country's 2002 default.

Judge Griesa said Argentina must not seek to avoid making payments to the holdout bondholders in accordance with an October 26 ruling from the 2nd U.S. Circuit Court of Appeals.

“If, and I emphasize if, there is any thought on the part of the Republic to defy and evade the current ruling, then that thought should be seriously reconsidered and set aside,” Griesa told Argentina's lawyers.

Griesa's comments came in response to remarks by Argentine President Cristina Fernandez, who said the country would not pay “one dollar to the 'vulture funds'.”

The holdouts include Elliott Management Corp affiliate NML Capital Ltd and the Aurelius Capital Management funds. They are suing to recoup 1.4 billion dollars of defaulted debt.

Griesa also said he would move to quickly resolve questions regarding how the payments will be made by December 2, when Argentina is due to make the first of three payments totalling more than 3 billion to bondholders.

The biggest payout will come December 15 when Argentina has to pay holders of its growth-linked GDP warrants, issued during its harsh 2005 and 2010 debt swaps.

Friday's hearing was the latest development in an array of US litigation stemming from the Argentina’s sovereign default.

The 2nd Circuit ruled that Argentina had improperly discriminated against bondholders who did not participate in the country's debt swaps. About 93% of creditors entered the swaps, exchanging their defaulted debt for new bonds.

The appeals court said Argentina had violated bond provisions requiring it to treat bondholders equally by paying those who did participate in the restructurings ahead of the holdouts.

The ruling sent Argentine bond prices reeling and prompted a sovereign debt downgrade by Standard & Poor's.

Following the appeals court ruling, NML Capital asked Griesa in a November 6 letter to rule quickly on two issues that the 2nd Circuit sent back to the trial judge to determine.

Among those issues was how the bond payment formula would operate. It also asked the judge to determine how the injunction would apply to third parties, including intermediary banks.

NML's letter cited remarks by the president and Economy Minister Hernan Lorenzino stating they would not pay the holdout creditors. The officials also vowed to continue servicing the country's restructured debt.

At the urging of NML, Griesa scheduled a quick timetable to resolve the questions posed by the 2nd Circuit, with briefing scheduled for completion by mid-November.

He said he intends to rule before the December 2 payment so the holdout bondholders have a chance to get a cut. A stay on payments to NML and the other bondholders remains in place at least until he issues a ruling, he said.

“They have been waiting for years to get some money,” he said. “And they're going to get something.”

The case is NML Capital Ltd et al v. Argentina, U.S. District Court, Southern District of New York, No. 08-06978.