U.S. backs Argentine stance on defaulted debt ruling

Reuters News
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Posted: Apr 06, 2012 10:13 PM
U.S. backs Argentine stance on defaulted debt ruling

By Hilary Burke

BUENOS AIRES (Reuters) - The U.S. government has backed Argentina in the latest legal battle over a 2002 default, arguing the nation should not have to pay "holdout" creditors when servicing debt held by investors who accepted a harsh restructuring, court documents show.

Argentina declared a world-record sovereign default during an economic meltdown a decade ago. It faces numerous lawsuits in U.S. courts by creditors who spurned past government swap offers and have sued to recover the full value of the defaulted bonds.

About 92 percent of Argentina's defaulted debt has been restructured through swaps carried out in 2005 and 2010. The country has steered clear of global credit markets since the default, partly because of the pending litigation.

On February 23, U.S. District Judge Thomas Griesa in Manhattan ordered that Argentina pay holdouts, including NML Capital Ltd and Aurelius affiliates, each time it services the debt issued in the swaps. This followed two related rulings from December.

Argentina quickly moved to appeal the decision.

On Wednesday, U.S. government lawyers filed an "amicus curiae" or friend-of-the-court brief, asking that the 2nd U.S. Circuit Court of Appeals reverse Griesa's rulings, according to documents obtained by Reuters and reported in the Argentine media on Friday.

The judge's orders "could enable a single creditor to thwart the implementation of an internationally supported restructuring plan, and thereby undermine the decades of effort the United States has expended to encourage a system of cooperative resolution of sovereign debt crises," U.S. lawyers wrote.

Griesa accepted an interpretation of the "pari passu" clause included in many bonds that NML's parent company, Elliott Associates, used to disrupt a Peruvian debt exchange in 2000.

At that time, Elliott convinced a Belgian court that under that clause, all creditors should be treated equally and that Elliott should get paid along with the creditors who entered Peru's swap. The country ended up settling with the fund for $58 million to move forward with its restructuring.

"The Belgian court's construction of the pari passu clause deviated from well-established market practice and was viewed with almost universal consternation by international financial markets," the U.S. legal brief stated.

Argentine officials say they expect to win this appeal.

"Argentina is very confident with regard to this process. There's no doubt the appeals court decision will be favorable," the country's undersecretary for financing, Fabian Dall'O, told state news agency Telam on Friday.

Griesa has granted several billion dollars in court judgments to litigating holdout creditors, but they have been unable to collect any money because U.S. sovereign immunity laws protect most assets owned by a country abroad.

Although Washington sided with Argentina in this particular case, it has been increasingly critical of the country's refusal to pay its debts, including compensation awards owed to U.S. companies in disputes stemming from its 2001-02 crisis.

Last month, the United States suspended trade benefits for Argentina over this issue.

"The United States consistently has maintained, and continues strongly to maintain, that Argentina immediately should normalize relations with all of its creditors, both public and private," government lawyers wrote.

(Reporting by Hilary Burke; Editing by Paul Simao)