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| English: Plaza del Congreso, Buenos Aires, Argentina. Español: Réplica firmada de El Pensador de Rodin, Buenos Aires, Argentina. Situada en el barrio de Monserrat, frente a la Palacio del Congreso de la Nación Argentina. (Photo credit: Wikipedia) |
Late Wednesday, New York district judge Thomas Griesa affirmed a ruling that bars Argentina from paying investors who swapped defaulted sovereign bonds for new securities unless it also pays investors who sued for full repayment.
Argentine Economy Minister Hernan Lorenzino said he was optimistic the U.S. Second Circuit Court of Appeals would rule in Argentina's favor before the Dec. 15 payment date.
"We trust in the U.S. Justice system," Mr. Lorenzino said at a press conference.
Argentina will exhaust all of its legal options, even appealing to the U.S. Supreme Court, to defend itself, he said.
In a moment of unintended levity, the minister accused Mr. Griesa of "judicial colonialism" by trampling on Argentina's laws and sovereignty.
Mr. Lorenzino said the judge's decision would take international law back to the 19th century, when colonial powers invaded developing nations like Argentina to collect on unpaid debts.
"All that is missing now is for Griesa to send the 5th Fleet [to collect]," he said.
Argentina's battle with the holdouts, which it calls "vulture funds," stems from its 2001 default on about $100 billion. Those creditors refused debt swaps in 2005 and 2010, when Argentina restructured about 93% of its defaulted bonds, offering investors about 33 cents on the dollar.
In October, the Second Circuit Court of Appeals ordered Argentina to begin paying Elliott Management Corp.'s NML Capital and other holdouts alongside the rest of its creditors and sent the case back to Mr. Griesa to explain how those payments were to be made and the role of intermediary banks.
In Wednesday's decision, Mr. Griesa said holdouts should be paid in full and as soon as possible. The judge also ordered the Argentine government to deposit $1.3 billion he says it owes NML Capital pending any adjustments required by the court of appeals final ruling.
Argentine bonds tumbled Thursday as investors made a beeline for the exits.
Dollar-denominated GDP warrants took the brunt of the blow, shedding 12.5% to close at 71.45 Argentine pesos ($14.90), while peso GDP warrants shed 7.6% to close at ARS14.90. The warrants are set to pay out about $3 billion on Dec. 15.
The fire sale extended to other New York law dollar bonds, including the Global 2017 bonds, which ended the day 7% lower at ARS530.
Investors fear that more adverse court rulings coupled with Argentina's refusal to negotiate with the holdouts could put the country in a situation where it defaults on its bonds. Argentine President Cristina Kirchner and Mr. Lorenzino have said in recent speeches the government won't pay holdouts a dime.
"If Argentina continues to play hardball on its holdout debt, it will find itself in technical default within a matter of weeks," economists at research firm Capital Economics said in a report.
The risk that payments on the restructured bonds might be blocked spurred several investors to submit briefs to Mr. Griesa earlier this week, arguing that such a scenario would harm third-party creditors who have nothing to do with the lawsuit.
Gramercy Funds Management, a creditor with more than $1 billion of the restructured bonds, vowed to immediately appeal Mr. Griesa's ruling to the Second Circuit Court of Appeals.
"Given Judge Griesa's obvious frustration with the Republic of Argentina, we expected this ruling. What we did not expect was the disregard of innocent exchange bondholders' due-process rights," Gramercy's lawyer, Sean O'Shea of Boies, Schiller & Flexner, said in a statement.
The case also attracted the attention of the U.S. Federal Reserve and banks that fear Mr. Griesa's ruling could have broad implications for the financial sector.
The Federal Reserve Bank of New York argued in a letter sent to the court earlier this week that the possibility of an injunction seizing funds transferred from intermediary banks to investors could "impede the smooth and efficient operation" of the U.S. payments system.
Mr. Griesa's decision applies to the individuals and financial institutions involved in the payment process of the exchange bonds, though intermediary banks transferring funds related to the bonds are apparently exempt.
"What we think is at play with a decision like this is--beyond the matter at hand--is the capability, prestige and credibility of New York's payment system," Mr. Lorenzino said.
He also said that if the ruling stands, it would make virtually impossible for heavily indebted countries to restructure their debts in the future.
"After this, who would enter a debt restructuring...knowing that at the end of the day, with a little bit of patience, a good lawyer and a sympathetic judge, you collect everything in cash?" Mr. Lorenzino said. ... 
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