Argentina Bond Fight|on Tenterhooks

     MANHATTAN (CN) – A federal judge on Friday stayed his order barring Citigroup from making a $5 million interest payment to bondholders to satisfy Argentina’s defaulted debts, and gave attorneys representing holdout creditors more time to argue that bonds governed by Argentina law fall under his order for repayment.
     U.S. District Judge Thomas Griesa in June ordered Argentina to pay $1.3 billion to holdout hedge funds NML Capital and Aurelius, which bought the bonds for pennies on the dollar in 1994, then refused to accept a restructuring plan in 2005 and 2010.
     Griesa also ruled that the bank must pay holdouts when it pays other bondholders. He once blocked Bank of New York Mellon from processing a $539 million interest payment.
     But on Friday, he stayed that motion and allowed the bank to make its $5 million payment, which was due Monday, giving it three months to process Argentina’s next payment of $262 million on New Year’s Eve.
     At issue is whether his order forcing the country to pay applies to U.S. dollar-denominated bonds issued in Argentina and under its authority.
     Citibank “faces serious risk” if it could not make the $5 million payment by Monday, Citigroup’s attorney, Karen Wagner, told Griesa, saying it faces sanctions by the country if it can’t process the interest payments on dollar-denominated issued bonds under Argentine law.
     “This is a branch bank, subject to the laws of Argentina,” Wagner said of the CitiBank in Buenos Aires. “It is not appropriate” for a U.S. court to require it to “violate the law … and put its employees at great risks.”
     Theodore Olsen, plaintiffs’ attorney, argued that modifying the judge’s injunction and allowing the payment will “open the way for Argentina to engage in similar evasions.”
     Olsen said that allowing the payment would “frustrate any possibility of a settlement.”
     After two hours arguing their cases, both sides presented motions that would allow the bank to process the payment, and give plaintiffs 30 days to prove that the bonds issued in U.S. dollars within Argentina fall under the court’s order for repayment.
     Griesa made clear Friday that his order covers only the unpaid bonds bought in 1994 and whose purchasers refused a restructuring settlement with Argentina in 2005 and 2010 – nothing more.
     “Look, the bonds that are covered isn’t some indefinite concept,” a frustrated Griesa told the packed courtroom in Federal Court. “It’s not all particular bonds.”
     He gave both sides 30 days to make their case as to whether bonds issued in U.S. dollars within Argentina are subject to his order.
     “That is tight,” he said, “but we do not want to be back here over and over when interest payments are due.”
     The holdout companies – which Argentina calls “vulture funds” – bought the debts during the South American nation’s default in 2001, then sued to enforce the original terms.
     While Argentina restructured the plans in 2005 and 2010 to satisfy most of its debts, NML and Aurelius held out to enforce the original deal.
     Griesa ruled in July that no other bondholders would be paid until billionaire Paul Stinger, who owns the hedge funds, gets paid $1.3 billion, or some other amount the parties could agree upon.
     Citibank has said it will be in violation of Griesa’s order if it doesn’t make the transfers by the end of September, putting it at risk of losing its license, and that executives in its Buenos Aires-based branch are in danger of criminal prosecution there.
     The 2nd Circuit has twice rejected appeals of his orders, and the U.S. Supreme Court declined to hear Argentina’s appeal that they pay holdouts and holders of exchanged bonds at the same time.
     Argentina has publicly balked at Griesa’s actions against its sovereignty. On Aug. 6, its financial ministry sent Citibank a letter demanding another payment by the end of September.
     Argentina threatened the bank with “grave risk for civil, regulatory and criminal liability” if it follows Griesa’s rulings instead of its own laws.
     But Griesa refused to intervene in the bond fight.

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