(Adds Argentine government comment)
By Nate Raymond and Joseph Ax
NEW YORK, June 27 (Reuters) - A U.S. judge on Friday called
Argentina's decision to make a sovereign debt payment in
defiance of a court order an "explosive action" and told Bank of
New York Mellon to return the money to the government.
U.S. District Judge Thomas Griesa in New York told lawyers
representing Argentina and BNY Mellon that any attempt to make
payment to bondholders without complying with his court is
illegal.
"It cannot be done and it will not be permitted by this
court. I want the banks and all concerned to know that... This
payment cannot be made and anybody who attempts to make it will
be in contempt of court," said Griesa, who was appointed to the
court by U.S. President Richard Nixon in 1972.
On Thursday, Argentina deposited $539 million in BNY
Mellon's account at the Central Bank of Argentina intended only
for bondholders who participated in two sovereign debt exchanges
in 2005 and 2010. In total the government transferred $832
million for payment to various bondholders.
In a statement, Argentina's government fired back, saying
Griesa was abusing his power and going beyond his jurisdiction
by blocking its attempt to pay holders of its restructured
bonds. It said the transferred money no longer belonged to
Argentina.
"He has tried to provoke our country to default," the
government's statement said, calling Griesa's decision
"senseless and unheard of."
Argentina said the deposit was made in order to meet a June
30 coupon payment deadline. There is a 30-day grace period,
however, before a default can be declared if exchange
bondholders do not receive their money.
Argentina was ordered by Griesa in 2012 to pay holdouts, who
did not participate in the debt exchange, $1.33 billion plus
interest on unrestructured bonds stemming from the country's
$100 billion default in 2001-2002. The order was denied a
hearing by the U.S. Supreme Court on June 16, effectively
upholding the holdouts' victory in the U.S. 2nd Circuit Court of
Appeals.
Holdout investors are led by Elliott Management's NML
Capital Ltd and Aurelius Capital Management, two hedge funds
that specialize in buying up deeply discounted or distressed
debt and negotiating profitable settlements, often through the
use of the courts.
BNY Mellon in court confirmed Thursday's deposit was made
into its account and told Griesa it was seeking to comply with
his orders.
"Those funds remain in that account. Nothing more has
happened," BNY Mellon's lawyer, Eric Schaffer of Reed Smith,
told Griesa. The firm offered no additional comment when asked
what it would do with the money in its account.
Griesa's order says Argentina cannot pay exchange
bondholders without also paying the holdouts at the same time
under the pari passu, or equal treatment, clause in the original
bond contract.
Schaffer suggested filing an action to let the judge decide
what to do with the money. Griesa said that was not needed.
"The Republic had no business making any payment to your
bank in the way and for the purpose that it did. It was
improper. It was a violation of court orders binding on the
Republic... Your bank didn't do anything wrong," Griesa said.
"But I would think that the money should simply be returned
to the Republic, simple as that," the judge said.
Separately, Griesa granted a motion from Citigroup
that permits it to pay its clients holding bonds governed by
Argentine law over the objections from lawyers representing the
holdouts.
It was unclear how much was transferred to Citigroup's
Citibank Argentina subsidiary. Robert Cohen of Dechert, lead
counsel for the holdouts, said that in addition to the money
deposited with BNY Mellon, another $300 million was transferred
to other banks. "Some of it may be with Citibank," he said.
Griesa put off for now signing orders providing five other
bondholders with rights under the pari passu clause similar to
NML and Aurelius.
"Their rights aren't going to go away," Griesa said, adding
that he didn't want to complicate matters at the present time.
Holders of euro-denominated restructured bonds were denied a
request exemption from the court's injunction because they say
their payments are made outside of the U.S. banking system.
Griesa said Argentina submitted to the jurisdiction of the court
when it originally sold the bonds and therefore, so were its
payments.
GET TO THE TABLE
Lawyers for both sides were repeatedly questioned why
settlement talks were not under way, given the deadlines.
"Why aren't they going forward today instead of having us
sit in court?" Griesa asked.
Earlier this week, the judge appointed New York financial
trial lawyer Daniel Pollack as a special master to help
facilitate a settlement between Argentina and the holdouts.
Pollack told Reuters via email he was in court during the
hearing and said he was "making every effort to get the parties
to the table."
The holdouts and Argentina have both said they want to
negotiate in good faith, yet substantive meetings have not yet
occurred.
Argentina's economy minister, Axel Kicillof, made a 10-hour
visit to New York on Wednesday, raising hopes he might sit down
to start negotiations. Instead, he took his argument to
sympathetic diplomats at the United Nations, saying he did not
meet with the holdouts.
Kicillof said the government needed Griesa to issue a
suspension, or stay, on his orders, saying there was not enough
time before the June 30 payment date to reach an agreement.
However, he did not make reference to the fact that Argentina
has a 30-day grace period before it could officially be declared
in default.
Griesa denied the government's request for a stay on
Thursday, about an hour after Kicillof said the deposit had been
made to BNY Mellon's account in Argentina.
When Kicillof revealed the deposit, the government issued a
statement mentioning "eventual judicial actions that would allow
us to exercise our rights as a member of the international
community ... before the International Criminal Court in the
Hague."
Cohen, the holdouts' attorney, said this amounted to a
warning to the United States, the lawyers in the case and Judge
Griesa about the possibilities of future litigation.
"We can think of nothing that deserves a contempt citation
more than that kind of behavior," Cohen said.
(Reporting by Nate Raymond and Joseph Ax; additional reporting
by Jonathan Stempel, David Henry, and Rodrigo Campos in New
York, and; Hugh Bronstein in Buenos Aires; Writing by Daniel
Bases; Editing by James Dalgleish, Tom Brown and Dan Grebler)
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