NEW YORK – Holdout U.S. hedge funds seeking full payment on bonds they bought at large discounts following Buenos Aires’ massive 2001 default may sue to block Argentina from servicing Bonar notes that mature in 2024, a judge ruled in New York.
U.S. District Judge Thomas Griesa in Manhattan ruled Thursday that the holdouts, led by Elliott Management Corp. founder and CEO Paul Singer’s NML Capital Ltd., can try to make those bonds subject to his 2012 ruling in favor of the litigating hedge funds.
That decision ordered Argentina to pay the hedge funds $1.35 billion plus interest on defaulted bonds.
Based on a “pari passu” (equal treatment) clause in those bonds, he also ruled that the South American country cannot make payments to so-called “exchange” bondholders who accepted substantial haircuts in 2005 and 2010 debt restructurings without simultaneously paying the holdouts.
Griesa has ruled that the “vast majority” of the exchange bonds, even those issued under Argentine law, qualify as “foreign” indebtedness and are subject to the pari passu clause.
Seeking to get around Griesa’s rulings and gain access to international financing, Argentina issued more of its dollar-denominated Bonar 2024 bonds, which are not part of the debt restructurings, in April.
Since then, the holdouts have tried to block payment on the Bonar notes on the basis that they were offered to foreign investors, an attempt Argentina’s Economy Ministry has called “another attempt at extortion.”
Argentina defaulted on roughly $100 billion in debt in December 2001 – at the time the largest sovereign default in history – amid a financial meltdown and economic depression.
At the same time as holdout investors are working to increase the scope of the pari passu injunctions, a creditor group led by Owl Creek Asset Management is on the cusp of controlling enough par bonds to demand immediate repayment, according to people familiar with the strategy.
Investors need at least 25% of a series of notes in order to demand their money right away in a process known as acceleration. Argentina has not paid on its bonds issued in exchange for its defaulted debt since last year.
NML v Argentina - Order - Including Bonar 24 - 16 July 2015 by Latin American Herald Tribune
NML v Argentina - Plaintiff Memorandum to Include Bonar 24 - 8 June 2015 by Latin American Herald Tribune