Reuters/Washington/Buenos Aires
Argentina has filed an appeal to the US Supreme Court seeking to reverse lower court decisions ordering the country to pay $1.33bn to hedge fund creditors in a case Argentine officials warn could force it to default on its sovereign debt.
The appeal followed a November 18 decision by the 2nd US Circuit Court of Appeals in New York denying Argentina’s petition for a rehearing in a decade-long legal battle with bondholders who refused to accept the country’s two debt-restructuring offers after the country defaulted on $100bn in 2002.
The litigation has heightened investor concerns about a potential debt crisis in South America’s second-largest economy, which is reeling from a 17% currency devaluation last month that sent shudders through global markets.
The Argentine government said through its embassy in Washington that the lower court orders “threaten the well-being of Argentina and its citizens, as well as of the countless holders of performing Argentine debt, many of whom are US institutional investors and individuals.”
Argentina is seeking to reverse the rulings that say the country must make full payment to the “holdout” creditors led by hedge funds Aurelius Capital Management and NML Capital, a unit of billionaire Paul Singer’s Elliott Management Corporation.
Argentina argues the funds bought the debt at a deep discount after the default and sought to thwart the country’s efforts to restructure its debt in which it paid its creditors less than full value of the bonds.
Creditors holding about 93% of Argentina’s bonds agreed to participate in the two debt swaps in 2005 and 2010, accepting between 25 and 29 cents on the dollar.
The case is being closely watched because of its potential impact on future sovereign debt restructurings. “Argentina’s arguments for prolonging this dispute are without merit and entirely unnecessary,” Jay Newman, a senior portfolio manager at Elliott, said in a statement. “As we have stated many times, if Argentina were willing to talk to its creditors, this dispute could be resolved quickly.”
In their rulings, the lower courts said Argentina must pay the bondholders who refused to participate in the debt restructuring along with those who did. Lawyers for Argentina argue the rulings violate sovereign immunity granted under US federal law by dictating to a country who they should make payments to.
Argentine President Cristina Fernandez has said her government will continue to pay creditors holding the country’s restructured debt, but will never pay the holdout bondholders whom she has called “vultures.”
Argentina’s continued refusal to pay could result in US courts enforcing injunctions blocking payment overseas to bondholders who participated in prior restructurings, possibly causing a new default.
In its appeal to the Supreme Court, Argentina suggested the high court ask the New York Court of Appeals to weigh in on a question of how to interpret state law, based on the fact that the bonds were issued under New York law.
