June 27, 2014 6:50 pm
Argentina’s payment illegal, says US district judge
Argentina looked headed for technical default on Monday after a federal judge said the country’s attempts to meet interest payments on its restructured debt via trustee Bank of New York Mellon were “illegal”.
US District Judge Thomas Griesa said in New York that the bank should return a $539m deposit made by the South American nation on Thursday. The funds were intended to cover interest payments of up to $832m to Argentine bondholders who did participate in the country’s previous debt restructurings, which come due on June 30.
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Judge Griesa called Argentina’s decision to deposit the money an “explosive action” that violated previous court orders which determined that so-called holdout investors and holders of restructured debt be paid at the same time.
“This payment is illegal and will not be made,” Judge Griesa said on Friday at a hearing in New York. The judge warned that any attempts to pay holders of restructured debt would be in contempt of the court and ordered BNY Mellon to return the money.
Lawyers representing the holdout investors, led by NML Capital, a subsidiary of US billionaire investor Paul Singer’s Elliott Capital, condemned the deposit and said the country “defiantly and contemptuously” violated the judge’s orders.
Argentina’s economy minister Axel Kicillof said on Thursday the government had proceeded with the payment, which included deposits into two accounts held by BNY Mellon with the country’s central bank, as a sign of its willingness to comply with the terms of its bond contracts.
Argentina’s holdout saga: pacta sunt servanda
The most casual followers of the Argentine debt saga will be familiar with the Latin term pari passu, or “equal footing” – or, in this case, equal payment to all holders of Argentine bonds, whether or not those holders took part in the country’s two restructuring programmes in 2005 and 2010 following its 2001 default.
Failure to meet the June 30 deadline would put Argentina into technical default, although the country still has a 30-day grace period to avoid formal default, its second in less than 15 years.
Buenos Aires has argued that it cannot meet the $15bn payment it claims Judge Griesa’s ruling will generate. The holdouts did not participate in the country’s two previous debt restructurings.
Still, Argentine officials last week said the country had agreed to a meeting in New York to discuss debt repayments to holdouts, and potentially put an end to a decade-long battle that has raged in US courts since the aftermath of the country’s massive default of 2002.
The meeting between holdouts and Argentine officials has yet to take place.
“I hoped [negotiations] would begin this afternoon,” Judge Griesa said. “Get the Republic to the table.”
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