Supreme Court to weigh next steps in Argentina bonds case

Reuters News
Posted: Jun 10, 2014 4:42 PM

By Lawrence Hurley

WASHINGTON (Reuters) - The Supreme Court is due to meet behind closed doors on Thursday to consider how to act on Argentina's appeal of lower court decisions ordering the country to pay $1.33 billion to hedge fund creditors.

A loss in the high-profile litigation could force Argentina to default on its sovereign debt, its government has said.

A high court announcement will come Monday at the earliest but it is also possible there will be no immediate action. The court often delays acting on petitions for a week or more after discussing them at the closed-door meeting.

The most likely next step will be for the nine Supreme Court justices to ask President Barack Obama's administration for a brief stating its views on the case, possibly delaying a decision on whether to hear the case by up to a year. The U.S. government has previously backed Argentina's position.

Separately, the court could, as Argentina has requested, ask the New York Court of Appeals to weigh in on how to interpret state law, based on the bonds having been issued under New York law.

The court could also decide outright to either hear the case or reject Argentina's appeal, although those outcomes seem less likely.

Argentina is seeking to avoid making full payment to holdout creditors led by hedge funds Aurelius Capital Management and NML Capital Ltd, a unit of billionaire Paul Singer's Elliott Management Corp.

Argentina is contesting an August 2013 ruling by the 2nd U.S. Circuit Court of Appeals in New York in a decade-long legal battle with bondholders who rejected the country's two debt-restructuring offers after the country defaulted on roughly $100 billion in 2001-2002. Creditors holding about 93 percent 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 appeals court upheld a November 2012 ruling by U.S. District Judge Thomas Griesa, who ordered Argentina to pay the $1.33 billion into a court-controlled escrow account. He said Argentina must pay the bondholders who rejected the debt restructuring along with those who accepted.

Argentina said in its most recent court filing that the government would struggle to pay the bondholders in full while also serving its restructured debt. In that scenario, "Argentina will have to face, objectively, a serious and imminent risk of default," the filing said.

The bondholders dispute that assessment, saying in their own court filing there was evidence presented in lower courts that Argentina could afford to pay.

The Supreme Court has another case related to the litigation currently before it. By the end of June, the court will decide whether the bond investors can force banks in New York with which Argentina does business to disclose information about the country's non-U.S. assets as the investors seek repayment.

(Reporting by Lawrence Hurley; Editing by Howard Goller and Tom Brown)