MercoPress. South Atlantic News Agency

Griesa blocks Citigroup from paying interest on Argentine bonds; group will appeal

Griesa's decision is the latest setback for Argentina in a long-running battle stemming from the country's roughly 100 billion sovereign debt default in 2001

A United States federal judge on Thursday said Citigroup Inc cannot process interest payments by Argentina on some bonds issued under that country's law. U.S. District Judge Thomas Griesa in Manhattan said letting Citigroup process the payments on so-called dollar-denominated exchange bonds would violate a requirement that Argentina treat bondholders equally.

 Griesa's decision upheld his order on July 28 that blocked Citigroup from making the payments on an estimated $2.3 billion of bonds.

In Buenos Aires Citibank said that the group would appeal to all legal actions possible to ensure compliance with the bonds' interest payment and Argentine law. To that respect it will request a stay of the injuction while the appeal is considered.

Citigroup asked Griesa on Thursday night not to enforce his decision while it appeals, warning of “catastrophic consequences” for its Citibank unit if it fails to process a 3.7 million payment scheduled for March 31.

Karen Wagner, a lawyer for Citigroup, said in a court filing that failure would result in “immediate and irreparable injury” to the bank, “including the possible loss of its valuable Argentine banking license.”

Jonathan Blackman, a New York lawyer representing Argentina, said the country is disappointed and will pursue its own appellate remedies.

Griesa's decision is the latest setback for Argentina in a long-running battle stemming from the country's roughly 100 billion sovereign debt default in 2001. Argentina subsequently restructured its bonds in 2005 and 2010, swapping existing bonds for new bonds worth less than one-third as much.

But a group of bondholders known as “holdouts,” including billionaire Paul Singer's Elliott Management LP hedge fund and its NML Capital affiliate, as well as the Aurelius Capital Management hedge fund, refused to accept the terms, and demanded to be paid in full.

Griesa has ruled that the holdouts must be paid before Argentina makes payments on the restructured bonds. Argentina refused, and defaulted last July after rejecting Griesa's order that it pay $1.33 billion plus interest to the holdouts.

Citigroup has portrayed itself as being in a legal no man's land, forced to choose between processing payments in defiance of Griesa's order, or not processing payments and putting its ability to do business in Argentina at risk.

Griesa acknowledged the predicament, saying “neither option is appealing,” but said it was the result of Argentina's having “refused to observe the judgments of the court to whose jurisdiction it acceded.”

An NML spokesman said the decision shows that “any third party”, not just Citigroup, is forbidden from helping Argentina circumvent Griesa's injunction by processing payments.

“Argentina should discontinue its defiance of courts and negotiate a resolution to this dispute,” the spokesman said.

Griesa said “the vast majority” of exchange bonds governed by Argentine law qualified as “external” indebtedness, triggering the equal treatment requirement. Last year he allowed the processing of three payments on the bonds.

The judge again urged that Argentina work with court-appointed mediator Daniel Pollack to end its disputes with the holdouts. Blackman, the Argentina lawyer, said the result of Griesa's decision is to expand injunctions that have “made it more difficult to reach a resolution.”