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Argentina Appealing U.S. Federal Court Ruling on Bondholder Payments

In November 2012, Argentina decided it will appeal a U.S federal court ruling ordering it to pay $1.33 billion to holdout bond investors. The government vowed on Thanksgiving Day to fight “judicial colonialism” all the way to the U.S. Supreme Court if need be.

The years-long legal battle resulted in a New York federal judge in late November 2012 ordering Argentina to promptly pay bondholders for defaulted debt in 2005 and 2010.

Financial markets feared a possible new default for Argentina. The South American country’s Economy Minister reported the government will take the New York judge’s ruling to the U.S. Second Circuit Appeals Court on November 26, 2012.

The government referred to the holdouts as “vultures” who are exploiting Argentina’s massive 2002 sovereign default. The government plans to go to the U.S. Supreme Court or “whatever international body that might be necessary” to press its case, according to Thomson Reuters News & Insights.

Fears of an impending default on Argentine bonds sent investors to the exits on Thanksgiving Day. Argentine bond spreads grew 116 basis points wider in thin on November 22, 2012 trade, according to JP Morgan’s Emerging Markets Bond Index Plus.

Argentina’s president, Cristina Fernandez, vowed the government will not pay “one dollar” to the holdouts. In the New York court’s ruling, the court cited threats by Argentina’s leaders to defy the rulings in the dispute spanning over a decade.

If the court’s ruling is upheld by an appeals court and Argentina continues to refuse to pay, U.S. courts could block debt payments to creditors who participated in the debt restructurings out of consideration for investors who rejected Argentina’s terms. This would trigger a technical default on about $24 billion worth of debt issued in the 2005 and 2010 exchanges. Argentina reported it will continue making routine repayments and funds deposited for creditors within the South American country are not able to be seized.

In the litigation drama, Argentina decried the court’s ruling as “a kind of judicial colonialism,” according to Thomson Reuters. The Argentine government has repeatedly refused to pay bondholders who did not swap their defaulted paper at a steep discount, or “haircut”.

A U.S. appeals court upheld the New York court’s decision in February 2012 that Argentina violated equal-treatment provisions for all creditors when it decided to pay exchange bondholders and not holdouts. The holdouts with the largest claims on unrestructured debt are owed about $1.33 billion. The judge in the case said in his ruling: “Argentina owes this and owes it now.”

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