tuesday, 8 october of 2013

Argentina´s Standoff with creditors moves to next stage

Defaulted debt

Argentina´s Standoff With Creditors Moves to Next Stage

The U.S. Supreme Court on Monday declined to hear an appeal by the government of Argentina that sought to fend off holdout creditors trying to collect on the country´s defaulted debt.

The court´s action is a setback for the Argentine government in its yearslong battle with hedge funds and other holdouts that refused to accept the country´s debt-restructuring offers after a historic default in 2001.

Argentine crew board a naval ship in Ghana last year. The vessel was briefly seized as part of a debt fight.

The case, however, is far from over. Argentina likely will have another opportunity to petition the Supreme Court because a related appeal in the case is still pending before the Second U.S. Circuit Court of Appeals in New York.

A lower-court order blocking Argentina from paying creditors who accepted a restructuring offer unless it makes good with the holdouts remains on hold as the legal wrangling continues.

"Argentina will continue exercising its right to defend itself with all available resources," said Argentina´s finance minister Adrián Cosentino.

The prospect that the legal battle would be extended—lowering the immediate risk that Argentina might default—buoyed prices of Argentina´s bonds on Monday.

Monday´s court action is "a positive development for markets," J.P. Morgan JPM -1.59% said in a note. "Litigation will linger for longer," thus pushing a possible endgame further down the road, the firm said.

Attention now returns to the Second Circuit, which is considering Argentina´s request that it reconsider an earlier ruling against the country. That request faces long odds because appeals courts don´t routinely reconsider their decisions. If the appeals court rejects Argentina´s request, the country will have 90 days to petition the Supreme Court again. The legal process could extend well into next year as a result.

Argentina had asked the justices to review lower-court rulings that said the country can´t make payments on its restructured debt unless it also pays the holdouts, which are led by hedge funds including Aurelius Capital Management and Elliott Management Corp. affiliate NML Capital Ltd.

If enforced, the rulings promise to make Argentina choose between paying the holdout creditors in full—something it has vowed never to do—or defaulting on its restructured debt.

Those rulings amount to an "unprecedented intrusion into the activities of a foreign state" that could imperil the debt-restructuring process supported by the international financial community, Argentina said in its Supreme Court appeal.

Argentina has criticized the holdouts as "vulture funds" that bought the debt at discount prices and then sought to impede the country´s restructuring efforts.
The hedge funds said Argentina had ample resources to pay its obligations to the holdouts. They also said Argentina didn´t deserve Supreme Court review because its government has indicated repeatedly that it will attempt to evade any U.S. court ruling it doesn´t like.

"Argentina´s representatives have asserted that it will file another petition, but the facts of the case and Argentina´s disregard for the rule of law remain the same. That petition also should be denied," Ted Olson, counsel for NML, said in a statement.
A spokesman for Aurelius Capital declined to comment.

The U.S. government previously has backed Argentina in the case even as it has criticized the South American country´s actions in the international financial arena. The U.S. has argued that lower-court rulings against Argentina ran counter to U.S. efforts to promote the orderly restructuring of debt.

The Supreme Court´s refusal to hear Argentina´s appeal came in a brief written order that offered no comment on the case.

Argentina faced hurdles in securing Supreme Court review because part of the case remained in the lower courts, a factor that often discourages the justices from getting involved.

Argentina defaulted on about $100 billion of debt during its financial crisis, the world´s largest sovereign-debt default. The country in 2005 and 2010 offered holders of the defaulted bonds new, heavily discounted debt in exchange, warning that it had no intention of resuming payments on the old bonds. Investors agreed to exchange about 93% of the defaulted bonds.

A New York federal trial judge and the Second Circuit ruled that Argentina´s refusal to pay the holdouts while paying on the newer debt violated a so-called equal-treatment promise the country made on the older bonds.

The Second Circuit rejected Argentina´s "blanket assertion" that a ruling against the country would plunge it into a new economic crisis.

According to the most recent lower-court ruling, Argentina owes the holdouts in the current case more than $1.3 billion in principal and interest.

(Published by The Wall Street Journal – October 7, 2013)

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