Elliott Management Corp.’s NML
Capital Fund and Aurelius Capital Management urged a federal
appeals court to uphold rulings by a lower-court judge that
would help creditors collect on debt that Argentina repudiated
more than a decade ago.
NML Capital and Aurelius asked the U.S. Court of Appeals in
New York yesterday to affirm rulings by U.S. District Judge
Thomas Griesa in Manhattan, who ordered Argentina to pay the
$1.3 billion claimed by bondholders in the case into escrow when
it makes payments to holders of the country’s restructured debt.
Griesa also barred third parties, including banks, from
helping Argentina evade its obligation to pay on the defaulted
bonds. Argentina’s appeal of those rulings is scheduled to be
heard by the court on Feb. 27.
Griesa’s rulings followed an Oct. 26 decision by the
appeals court that Argentina can’t treat holders of its
restructured debt more favorably than the so-called “hold-out”
creditors including Aurelius and NML Capital, which declined to
participate in two rounds of debt restructuring. Argentina
defaulted on a record $95 billion in debt in 2001.
Defaulted Bondholders
In their briefs filed yesterday, NML Capital and Aurelius
argued that Griesa acted within his authority when he issued an
order barring Argentina from going forward with payments to
holders of the restructured bonds unless it also pays the
defaulted bondholders.
“Given Argentina’s undisputed financial ability to honor
all of its obligations, a remedy that requires Argentina to pay
appellees what they are owed whenever it pays the exchange
bondholders what they are owed cannot possibly be inequitable,”
NML Capital said in its filing.
Aurelius said Griesa properly identified Bank of New York
Mellon Corp., the indenture trustee for the bonds, owners of the
restructured bonds and clearing systems as parties that may be
prevented from aiding Argentina in paying holders of the
restructured bonds in violation of the court orders.
Last month, Argentina asked the appeals court to reverse
Griesa’s rulings, claiming they illegally interfere with its
immunity as a sovereign nation and improperly exert authority
over third parties. Argentina is supported in its appeal by the
American Bankers Association and holders of the restructured
bonds, which filed briefs supporting the country’s legal
position.
‘Self-Interested Arguments’
“Argentina rehashes the same self-interested arguments
that this court rejected in its Oct. 26 decision,” NML Capital
said in its filing, “most prominently, that requiring Argentina
to live up to its equal treatment promise will somehow harm
sovereign restructurings by other nations.”
Argentina issued the bonds beginning in 1994. Since the
2001 default, its government has refused to make any payments on
principal or interest.
Argentine officials, including President Cristina Fernandez De Kirchner and Economy Minister Hernan Lorenzino, last year
vowed that the Republic won’t pay what it called the “vulture
funds” that are trying to collect on the defaulted bonds.
In 2005 and 2010, Argentina offered an exchange to holders
of the defaulted bonds. The investors could trade for new
exchange bonds, at a discount of as much as 75 percent. Holders
of more than 91 percent of Argentina’s defaulted debt
participated, according to the appeals court. Argentina has made
all required payments on the exchange bonds while continuing to
refuse payment to the holdout bondholders.
Distressed Debt
Some of the holders of the defaulted bonds bought them
before they were repudiated by Argentina and have held them
since. Others, including Aurelius and NML Capital, bought the
bonds later, as distressed debt.
Griesa’s Nov. 21 ruling that Argentina had to pay $1.3
billion into an escrow account if it went ahead with the
scheduled payments of about $3 billion sparked a rout in
Argentine bonds and prompted Fitch to cut ratings on the
country’s debt.
The case is NML Capital Ltd. v. Republic of Argentina,
12-00105, U.S. Court of Appeals for the Second Circuit
(Manhattan).
To contact the reporter on this story:
Bob Van Voris in New York at
rvanvoris@bloomberg.net
To contact the editor responsible for this story:
Michael Hytha at
mhytha@bloomberg.net
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