NEW YORK Argentina suffered a stinging blow late on Wednesday, when a New York federal judge, citing threats by the country's leaders to defy his rulings in a decade-old dispute over defaulted sovereign bonds, ordered immediate payment.
In an ruling delivered just as the United States headed off for its Thursday Thanksgiving holiday, U.S. District Judge Thomas Griesa rejected Argentina's request to maintain his previous order halting payments to holdout investors who did not participate in two bond exchanges of defaulted sovereign debt.
The ruling is the latest development in a litigation saga that has lasted more than ten years and now appears to be favoring holdout bond investors such as Elliot Management Corp's NML Capital Ltd and Aurelius Capital Management.
If Griesa's ruling is upheld and Argentina chooses to defy him, U.S. courts could ultimately inhibit debt payments to creditors who accepted the terms of the restructuring, out of consideration for investors who rejected Argentina's terms at the time.
This would trigger a technical default on approximately $24 billion worth of debt issued in the 2005 and 2010 exchanges.
Last week, Argentina, which defaulted on its bonds in 2002, asked Griesa to keep his stay order in place while the U.S. 2nd Circuit Court of Appeals for New York considered the country's request for a revisitation of an unfavorable ruling in October.
Griesa wrote that he would ordinarily leave his order in place pending a ruling from the 2nd Circuit. However, he concluded this was not possible given comments from Argentine officials, including President Cristina Kirchner, that Argentina would not pay anything to the holdout bondholders.
"It is the view of the District Court that these threats of defiance cannot go unheeded, and that action is called for," Griesa wrote, saying the payments should be made as soon as possible.
The 2nd Circuit already upheld Griesa's February 23, 2012 decision that Argentina violated equal-treatment provisions for all creditors when it chose to pay exchange bondholders and not holdout bondholders.
Given that Griesa's latest decision still needs the final blessing of the 2nd Circuit, he ordered that rather than Argentina paying the plaintiffs directly, it should deposit the money in an escrow account by December 15.
Griesa was unconvinced by Francisco Eggers, Argentina's National Director of the National Bureau of Public Credit, who submitted a signed affidavit last week saying the government would abide by the court's rulings and would not seek to evade its directives.
Griesa's rulings on Wednesday answered the 2nd Circuit's lingering questions as to what holdouts should be paid and by what mechanism, as well as how the judge would treat third-party banks such as Bank of New York Mellon, which act as transfer agents for restructured bondholders.
Griesa's decisions go back immediately to the 2nd Circuit, which will decide if it agrees with his logic or not.
After the October decision, President Fernandez said her country would not pay "one dollar to the vulture funds." This is her term for holdout investors who buy distressed or defaulted debt and then sue in international courts for full payment.
In his ruling, Griesa said the less time Argentina was given "to devise means for evasion, the more assurance there is against such evasion."
"There is no question about what is 'currently due' to plaintiffs," Griesa wrote. "The amount that is currently due is the amount of the unpaid principal, the due date of which has been accelerated, and accrued interest."
NML and Aurelius, the holdouts with the largest claims on unrestructured debt, are owed approximately $1.33 billion.
"Argentina owes this and owes it now," Griesa said. "It should be emphasized that these are debts currently owed, not debts spaced out over future periods of time."
Griesa said NML and Aurelius should be paid concurrently or ahead of exchange bondholders.
Argentina is due to pay bondholders who participated in two debt restructurings in 2005 and 2010 approximately $3.14 billion in interest payments next month and not again until March 2013.
Griesa rejected arguments from exchange bondholders that full payment to NML and Aurelius would infringe on their rights.
"In accepting the exchange offers of thirty cents on the dollar, the exchange bondholders bargained for certainty and the avoidance of the burden and risk of litigating," he wrote.
"Moreover, it is hardly an injustice to have legal rulings which, at long last, mean that Argentina must pay the debts which it owes. After ten years of litigation this is a just result," the judge said.
Griesa's rulings were made available by plaintiffs attorneys, who sometimes receive them before they become available in the court's electronic filing system.
The 2nd Circuit has also directed Griesa to spell out precisely how his injunctions would apply to third-party banks.
Among the banks is BNY Mellon, which transfers funds from Argentina to the country's bondholders. It argues that the injunction would interfere with its duties to the exchange bondholders and could cause a wider disruption to the largely automated international bank payment systems.
Griesa said BNY Mellon's arguments "miss the point" and if Argentina followed the appeals court ruling there would be "no problem" about the money ending up in the right accounts.
He said that if Argentina attempted to make payments to the exchange bondholders in violation of the court's rulings, third party institutions should be "held responsible" for ensuring they are not taking steps to violate the law.
Carmine Boccuzzi, a lawyer for Argentina in New York, did not respond to a request for comment, while attempts to reach Argentina's Economy Ministry were unsuccessful given the late hour of the ruling.
Stephen Sigmund, a spokesman for Aurelius, declined comment as did Peter Truell, a spokesman for Elliott Management.
(Reporting by Andrew Longstreth, Nate Raymond, and Daniel Bases in New York; Helen Popper in Buenos Aires. Writing by Daniel Bases; Editing by Jacqueline Wong and David Brunnstrom)