Argentina Ordered To Pay Elliott, Other Holdouts Next Month

Nov 26 2012 | 12:53pm ET

Elliott Associates has won a huge victory in its ongoing battle with Argentina over the country's debt default a decade ago.

A federal judge in New York ruled that Argentina must pay Elliott and other holders of its defaulted bonds $1.33 billion if it wishes to pay debtors who accepted its restructuring more than $3 billion. The decision means that Argentina, which has steadfastly said it would not pay the holdouts, led by Elliott affiliate NML Capital, might be forced to default on its restructured debt.

Formally, U.S. District Judge Thomas Griesa simply refused to extend a stay on an earlier ruling he made, finding that Argentina must pay the holdouts if it wishes to pay those who took a huge haircut after its default. Argentina lost an appeal of Griesa's earlier ruling but has vowed to continue to fight it.

Griesa ordered Argentina to put the $1.33 billion into an escrow account pending its further appeals.

"Argentina must pay the debts which it owes," Griesa wrote. "After 10 years of litigation, this is a just result."

The move puts Argentina in a very difficult spot. The country and its president, Cristina Fernandez de Kirchner, have made the issue of the holdouts—which it lovingly refers to as "vultures"—a point of sovereignty and national pride, and has said it will never pay them. But it has also said that it will neither evade U.S. court decisions nor default on the restructured debt.

Argentina's economy minister, Hernán Lopez, called Griesa's decision "unfair" and vowed to "take all the necessary legal steps." But Argentina is running out of time: The country plans to make a bond payment on Dec. 2 and another on Dec. 15.

For his part, Griesa cited Argentina's continuous pledge not to pay the holdouts for his decision.

"Surely an extraordinary circumstance of the most serious nature arises from continuous declarations by the President of Argentina and cabinet officers, that Argentina will not honor or carry out the current rulings," Griesa wrote. "The less time Argentina is given to devise means for evasion, the most assurance there is against such evasion."

The judge also showed little compassion for either the restructured bond holders or Bank of New York Mellon, the trustee for the bonds.

"In accepting the exchange offers of 30 cents on the dollar, the exchange bondholders bargained for certainty," Griesa wrote. "The exchange bondholders made the choice not to pursue the route which plaintiffs have pursued."

As for BNY Mellon, Griesa dismissed its concerns that it could face legal action, saying the bank's arguments "miss the point," and that its legal concerns as a third party cannot allow Argentina to break the law.

Meanwhile, on the other side of the Atlantic Ocean, Argentina was dealt another legal blow. A court in Ghana refused to dismiss an NML claim filed in that country that has seen the Argentina navy's flagship impounded there since the beginning of last month.

Argentina had argued that the Ghanian court lacked jurisdiction in a fight between it and a foreign hedge fund. Argentina will get its next chance to get its ship, the ARA Libertad, back this week, when the United Nations International Tribunal for the Law of the Sea will hear its case against Ghana.

The court, in Hamburg, Germany, is expected to make a quick decision. Argentina plans to argue that warships are not allowed be seized in foreign ports.

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