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Sonntag, 21. September 2014

New York Court Rejects Appeal by Argentina, Citibank in Debt Case

New York Court Rejects Appeal by Argentina, Citibank in Debt Case

NEW YORK – A U.S. appeals court in New York said it does not have jurisdiction to overturn a ruling barring a Citigroup unit from processing interest payments made by Argentina to holders of restructured local-law government bonds.

Argentina and Citibank had appealed a decision by a U.S. federal judge in Manhattan, Thomas Griesa, who said in July that his ruling barring Buenos Aires from making payments on restructured debt before settling with a small group of holdout hedge funds also applies to bonds governed by Argentine law.

But the appeals court said Friday it did not have jurisdiction in the case because Griesa’s July decision was a “clarification and not a modification” of his original injunction, issued in 2012.

Argentina defied Griesa’s injunction and deposited around $1 billion with bond trustees – including Citibank’s Argentine unit – to make a scheduled June 30 payment to those creditors, but Griesa’s clarification prevented banks from processing it.

The Citibank unit is the trustee for exchange bonds issued under Argentine law, which account for about a quarter of the total.

Citibank, in appealing the decision, said its Argentine unit could face severe penalties if it cannot process a payment on those local-law bonds due on Sept. 30.

The three-judge panel of the United States Court of Appeals for the Second Circuit said nothing in its Friday decision “is intended to preclude Citibank from seeking further relief from” Griesa’s court.

Argentina defaulted on roughly $100 billion in debt in December 2001 – the largest sovereign default in world history – amid a financial meltdown and economic depression.

More than 92 percent of Argentina’s creditors accepted steep haircuts in 2005 and 2010 debt restructurings.

But a small group of holdouts that bought Argentine debt in the wake of the 2001 default have refused to accept the swaps and are continuing to seek 100 cents on the dollar for their bonds.

Among the holdout creditors are several hedge funds, led by Elliott Management Corp.’s NML Capital Ltd unit and Aurelius Capital Management, that sued Buenos Aires in the U.S. courts for full payment on bonds they bought at large discounts in 2002.

In 2012, Judge Griesa ordered Buenos Aires to pay the litigants more than $1.3 billion. Argentina’s appeal of the decision reached the U.S. Supreme Court in June, but the justices declined to hear the challenge.

Argentine President Cristina Fernandez’s administration has refused to settle with the holdouts, saying full payment to the hedge funds would lead other holdout bondholders to demand the same, creating a potential liability of some $15 billion, equivalent to half of Argentina’s foreign-exchange reserves.

The origins of the debt problem go back to Argentina’s 1976-1983 military regime, which presided over a 465-percent expansion in public indebtedness.

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