Argentina aims to skirt U.S. court, bring debt under national law

Reuters News
Posted: Aug 19, 2014 9:54 PM

BUENOS AIRES (Reuters) - President Cristina Fernandez on Tuesday unveiled legislation that seeks to push bondholders to swap defaulted debt for new notes governed by Argentine law, a move aimed at skirting a U.S. ruling that prevented her government from paying its creditors.

Argentina slid into default last month after a New York court blocked an interest payment of $539 million owed to holders of debt that was restructured after the country's record 2002 default.

The judge said Argentina could not proceed with that payment until it had also settled on repayment terms with a group of funds that had rejected the restructuring deal and are demanding full payment.

That ruling by U.S. District Judge Thomas Griesa set off a series of heated exchanges with Argentine officials, who said Griesa did not understand the complexities of the case. Argentina has consistently denied it defaulted when it missed the July 30 deadline for the interest payment, instead blaming Griesa for overstepping his bounds and blocking the payment.

For his part, Griesa threatened a contempt order if the country did not stop issuing "false and misleading" statements.

It was not clear on Tuesday night whether the maneuver could succeed in sidestepping the U.S. court's oversight and what impact it might have on the country's default status.

Argentina's tough-talking president, who has been unflinching in her refusal to pay the holdouts face value on their bondholdings, said the new restructuring would respect the terms of earlier bond swaps in 2005 and 2010. More than 90 percent of creditors accepted large writedowns at the time.

"If bondholders decide - in individual or collective form - to ask for a change of the legislation and jurisdiction of their bonds ... the economy ministry is authorized to implement a swap for new public bonds under local legislation, Fernandez said in a televised statement.

Fernandez said the holdouts - or "vultures" as she described them - could participate in the new restructuring if they accepted the same terms as other bondholders - a proposal the New York hedge funds have repeatedly scoffed at.

Her announcement appeared to kill hopes that Argentina might soon reach a deal with holdouts, enabling it to exit default.

She said her government would send a bill to Congress to remove Bank of New York Mellon as the exchange bondholders' trustee. It plans to replace it with Argentina's Banco Nacion, which would open up an account at the central bank to enable Argentina to service its exchange debt there.

"The law aims to implement legal instruments that would allow the servicing... of the bonds issued in the sovereign debt swaps of 2005 and 2010," Fernandez said.

(Reporting by Sarah Marsh and Walter Bianchi; Editing by Kieran Murray and Ken Wills)