Appeal Court

Argentine bond awards to be recalculated, Court rules

A U.S. judge who awarded damages to holders of defaulted Argentine bonds in a group lawsuit must recalculate those damages to more closely reflect individual losses, an appeals court ruled.

The U.S. Court of Appeals in New York ruled today that the lower court couldn't ignore questions affecting the value of claims such as when a bond was bought or whether it was purchased on the secondary market, even though it might have no effect on what a plaintiff ultimately collects.

"The court reasoned that granting inflated judgments was justifiable because, given Argentina’s general refusal to pay any judgment against it, plaintiffs were unlikely to recover," the court said. "However practical this approach might have been, we conclude it was improper."

Argentina is restructuring $18.3 billion worth of bonds held out of a 2005 settlement after the nation defaulted on $95 billion in debt in 2001. Economy Minister Amado Boudou said May 19 that about $8.5 billion, or 46 percent, of the eligible debt had been tendered so far. The offer, as measured in net- present value terms, was worth about 42.5 cents on the dollar last week, according to RBS Securities Inc.

The swap closes on June 7.

Creditors have filed about 140 individual and 18 class action lawsuits in the U.S., winning judgments totaling about $6.4 billion, Argentina said in a prospectus filed with the U.S. Securities and Exchange Commission on April 28.

$4 Billion Remaining

As much as $4 billion of defaulted debt remains in the hands of investment funds that are pursuing litigation, Boudou said in a May 21 interview on Canal 7 television in Buenos Aires.

The appeals court sent the damages issue back to U.S. District Judge Thomas Griesa, who handles all U.S. litigation involving the Argentine default. The three-judge panel said he was mistaken to use aggregate judgments based on "reasonable estimates" without explaining the basis for his calculations.

The appeals court suggested Griesa use "a variety of tools" and consider "alternative approaches" to set awards that "more closely" reflect class members' losses.

The court also rejected Argentina's contention that the class was improperly certified.

The case is Puricelli v. The Republic of Argentina, 09-0332, U.S. Circuit Court of Appeals for the Second Circuit (New York).

(Published by Bloomberg  – May 27, 2010)

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