Judge Delays Decision on Argentine Bonds

By Dow Jones Business News, 

U.S. Judge Denies Argentina More Time to Negotiate

A U.S. District Judge in a hearing Tuesday didn't grant Argentina's request for more time to negotiate with holdout creditors, directing both parties and their lawyers to meet with a court-appointed mediator to reach a settlement.

On Monday, Argentina asked Judge Thomas Griesa to allow it to make the interest payment due June 30 on its restructured bonds, which would give the country more time to negotiate a settlement with its holdouts.

Judge Griesa has ruled that Argentina isn't allowed to pay its restructured bondholders until it reaches a settlement with a group of holdout creditors who have refused the country's debt restructuring offers since its 2001 default and are owed about $1.6 billion. If Argentina is unable to reach an agreement with the holdouts by July 30, it will suffer its second default in 13 years.

At a hearing in federal court in Manhattan, Judge Griesa told both sides to meet "promptly and continuously" with Daniel Pollack, the court-appointed mediator. Mr. Pollack announced at the hearing that both parties could meet in his New York office Wednesday morning at 10 a.m. ET.

Judge Griesa said Argentina should negotiate for more time during these talks.

If both sides fail to reach a resolution by the end of the month, "there will be a default on July 30, and that is about the worst thing that I can envision," Judge Griesa said. "I don't want that to happen. Real people will be hurt by that."

Argentina's dollar bonds due 2033, whose interest payment was due June 30, dropped to 87.25 cents on the dollar from 88.75 cents before the hearing. The yield jumped to 9.96% from 9.74%; bond yields rise when prices fall. Argentina's benchmark Merval stock index was down 1.1% in afternoon trading.

A spokesman for NML Capital Ltd., one of the holdout creditors, said in a statement after the hearing that it is prepared to meet with the court-appointed mediator to resolve this dispute.

"We are confident this matter could be resolved quickly if Argentina would join us in settlement discussions," NML's spokesman said.

Separately, Judge Griesa said he would decide at a later time whether interest payments can be made to holders of Argentine bonds issued under Argentine, U.K. and Japanese law.

On June 26, Argentina deposited more than $800 million to make interest payments due June 30 on its restructured bonds. Bank of New York Mellon Corp. received $539 million for bonds governed by U.S. and U.K. law, Citigroup Inc. received close to $300 million for bonds governed by Argentine law and J.P. Morgan Chase & Co. received $2.1 million for bonds governed by Japanese law.

Judge Griesa has since said the deposit was illegal because U.S. courts have ruled that Argentina cannot pay restructured bondholders until it compensates the holdouts. Holders of the U.K., Argentine and Japanese law bonds have argued their debt falls outside the scope of Judge Griesa's rulings.

After Argentina's default in 2001, the country had two debt restructurings in 2005 and 2010, where it issued debt governed by U.S., U.K., Argentine and Japanese law. A large part of the hearing on Tuesday, which lasted more than two hours, was spent sorting through which bondholders in which jurisdictions should be allowed to get their interest payments.

Bondholders in other jurisdictions have argued that they should get their money because the payments aren't governed by U.S. law and don't flow through the U.S.

Also on Tuesday, Judge Griesa told the lawyer for BNY Mellon that the bank should negotiate with the holdouts about what to do with the $539 million deposited by Argentina on June 26 as part of the attempted payment to restructured bondholders.

The holdouts have said BNY Mellon should return the money to Argentina because if the money sits in BNY Mellon's account, Argentina can claim that it technically made the payment and isn't in default. BNY Mellon has argued that returning the money would expose the bank to unnecessary litigation. The bank is already getting sued in Belgium by a group of euro bondholders demanding their interest payment, and the same group is threatening to file suit in U.K. courts if BNY Mellon returns the money to Argentina.

--Matt Day and Ken Parks contributed to this article.

Write to Nicole Hong at nicole.hong@wsj.com

Subscribe to WSJ: http://online.wsj.com?mod=djnwires

  (END) Dow Jones Newswires
  Copyright (c) 2014 Dow Jones & Company, Inc.

This article appears in: Bonds

Referenced Stocks: BK , C

Dow Jones Business News

More from Dow Jones Business News:

Related Videos




Most Active by Volume

  • $38.72 ▼ 5.40%
  • $17.0399 ▲ 0.53%
  • $90 ▼ 4.14%
  • $5.155 ▼ 3.64%
  • $100.82 ▼ 0.14%
  • $11.3572 ▼ 5.36%
  • $29.73 ▲ 0.68%
  • $98.7099 ▼ 1.27%
As of 9/22/2014, 02:35 PM