Argentina told a U.S. appeals court in New York that it won’t voluntarily comply with rulings that might force it to pay holders of its defaulted debt and trigger a financial crisis.
Lawyers for the South American nation went before the appeals panel today to challenge a lower-court order that obliges it to pay the defaulted bonds whenever it makes payments on restructured debt. The republic claims that the order violates its sovereignty, exposes it to the possibility of a new financial crisis and threatens efforts by other countries to restructure overwhelming sovereign debt.
Argentina “won’t voluntarily comply” with the rulings if the appeals court upholds them, said Jonathan Blackman, a lawyer for the country. “If that’s the confrontation the court seeks with the injunctions, that is the court’s decision.”
A range of third parties with a stake in the outcome — including the holders of Argentina’s restructured debt, international payment intermediaries and banks, and the trustee for the restructured bonds — claim the lower court’s actions also threaten their interests.
U.S. Circuit judges Barrington Parker and Reena Raggi opened the hearing by asking about equal treatment of debt holders.
Holders of defaulted bonds, led by Elliott Management Corp.’s NML Capital Ltd., run by billionaire hedge fund manager Paul Singer, and Aurelius Capital Management, have won U.S. court judgments recognizing their right to be paid and are asking the appeals court to uphold the lower court to give them the ability to collect the $1.3 billion they say they’re owed.
Argentina says a ruling in the creditors’ favor would open it up to more than $43 billion in additional claims it can’t pay. The country defaulted on a record $95 billion in debt in 2001. Holders of about 91 percent of the bonds agreed to take new exchange bonds in 2005 and 2010, at a deep discount.
The three-judge panel of the U.S. Court of Appeals is hearing arguments from both sides, as well as from lawyers for the Exchange Bondholder’s Group, which represents holders of Argentina’s restructured debt, and for Bank of New York Mellon Corp., the indenture trustee for the restructured bonds.
The lower court case is NML Capital Ltd. v. Republic of Argentina, 08-06978, U.S. District Court, Southern District of New York (Manhattan). The appeal is NML Capital Ltd. v. Republic of Argentina, 12-00105, U.S. Court of Appeals for the Second Circuit (New York).