(Bloomberg) -- Defaulted Argentine bonds issued in Europe rallied on speculation a decision by a London judge may lead to the disbursing of frozen interest payments on the securities.
Euro-denominated debt due in 2033 surged 3.88 cents on the euro to 91.13 cents at 1:38 p.m. in New York. Judge David Richards said today an account holding about $258 million in payments on the bonds would be subject to London law. The notes have been in default since July, when a U.S. court blocked their payment. In total, about $17 billion of Argentine bonds were issued under London law.
While the London judge didn’t issue an order compelling bond trustee Bank of New York Mellon Corp. to disburse the funds, he said the bank or euro-bond holders can submit his decision to U.S. District Judge Thomas Griesa, whose orders are currently blocking the bond payments. Argentina is banned by Griesa from making payments on its overseas bonds until holdout creditors from its default in 2001 are paid in full.
“The decision creates the opportunity of an amendment to Griesa’s ruling that would permit payment of the euro bonds,” Patrick Esteruelas, a senior analyst at Emso Partners, said by phone from New York. “It all hinges on what Griesa is going to determine.”
Judge Richards’s order was sought by a group of holders of the euro bonds that includes George Soros’s Quantum Partners and Kyle Bass’s Hayman Capital Management. Together, the group owns more than 1.3 billion euros ($1.48 billion) of the debt.

2001 Default

Attorneys for the group said in a statement the London ruling was a “significant step forward in the defense of their interests.”
Louisa Bartoszek, a London spokeswoman for BNY Mellon, declined to immediately comment when reached by phone.
The dispute stems from Argentina’s $95 billion default in 2001. While 92 percent of creditors accepted losses of 70 percent in 2005 and 2010 restructurings, hedge funds including billionaire Paul Singer’s NML Capital sued for better terms, eventually winning a ruling from Griesa to be paid in full. The U.S. Supreme Court left the ruling intact in June.
Argentine President Cristina Fernandez de Kirchner has refused to comply with the ruling, triggering a second default in 13 years. The nation’s Economy Minister, Axel Kicillof, called the holdouts “obstinate” in a Feb. 10 interview.
Robert Cohen, an attorney for NML, said the U.S. injunction will continue to prevent payouts until the holdouts are paid.

Dollar Bonds

The euro bondholders “cynically went to the U.K. court seeking relief that they had already been denied in the U.S.,” he said in a statement. “That effort failed.”
Dollar-denominated bonds due 2033, which also went into default in July, gained 1.34 cent on the dollar to 93.6 cents.
The optimism spurred by Judge Richards’s decision may be overblown as Griesa is unlikely to revise his orders, said Alejo Czerwonko, a strategist at UBS Wealth Management’s chief investment office in New York.
“We’ll see how he reacts,” Czerwonko said by e-mail. “I very much doubt he will exclude U.K.-law bonds from the injunction.”
To contact the reporters on this story: Katia Porzecanski in New York atkporzecansk1@bloomberg.net; Kit Chellel in London at cchellel@bloomberg.net
To contact the editors responsible for this story: Brendan Walsh atbwalsh8@bloomberg.net Dennis Fitzgerald, Rita Nazareth