Sovereign bonds that are under local jurisdiction could go unpaid at the end of the month
US District Judge Thomas Griesa dealt another blow yesterday to Argentina at his New York courtroom as he rejected a “stay” request by Citigroup that could have allowed some local bond payments to go through despite the legal blockade against servicing the sovereign debt in the US banking system.
Citigroup had asked Griesa to put his decision blocking processing of some Argentine-law bond payments on hold until the appeals process was completed.
But Griesa denied the request in a brief order, which did not explain the reasoning behind his decision.
His rejection came shortly after another ruling last week, in which Griesa stated that Argentine-law bond repayments, which he had so far authorized to go through on a provisional basis, also fell under the restrictions he established for New York-based bonds.
The repayment of most of Argentina’s debt coupons is forbidden by Griesa until the country reaches an agreement with the seven percent of bondholders which did not accept the debt restructuring offers made by the country in 2005 and 2010.
Griesa’s most recent ruling means that Argentina could be blocked from servicing yet another set of bonds which it had so far managed to repay, as the judge had not made a definitive decision on them.
The deadline for the next round of debt servicing is March 31.
Although the money due on that date is only US$15 million, the consequences are more far-reaching, as Griesa’s ruling threatens to close an alternative avenue of payment that the country could use if New York continues to be blocked, and even put the future of the Citibank’s Argentine operations into doubt.
NATIONAL SOVEREIGNTY
In his ruling, Griesa said that the vast majority” of exchange bonds governed by Argentine law qualified as “external” indebtedness, not domestic, triggering the “equal treatment” clause of the contract, which last year he interpreted as meaning that no bonds could be repaid until all bondholders reached a deal with the country.
This was seen by Argentine authorities as yet another interference with Argentine sovereignty.
Now, the government could threaten Citibank with severe sanctions, including suspending the bank’s licence to operate in Argentina, as it did with the Bank of New York (BONY) when it decided to obey Griesa’s ruling above Argentine laws.
Citibank’s lawyer Karen Wagner had told Griesa that the future of the bank and its employees in Argentina were at risk, but the judge remained unmoved.
ALTERNATIVE ROUTES
Despite the growing restrictions, Central Bank chief Alejandro Vanoli said on Sunday the country was still looking for fresh funds abroad, arguing that banks would eventually find a way around Judge Griesa’s rulings to offer investors a safe way of loaning money to Argentina.
Argentina has been looking for alternative routes to pay debt and raise new funds since shortly after the US Supreme Court decided not to hear Argentina’s appeal in its legal saga against “vulture funds” NML Capital and Aurelius and US ratings agencies said the country had entered into technical default. The country offered an Argentine-based bond exchange programme in 2014 for holders who were not getting their cash back due to Griesa’s ruling in New York and, last month, it entered talks with JPMorgan and Deutsche Bank to find European investors willing to loan money to the country.
Now, the country’s main hope resides in forcing a clash between European courts — which have so far been more receptive to Argentina’s predicament — and US judges.
—Herald staff with Reuters