Argentina’s Euro Bondholders Dispute US Court Ruling


The European Bondholders of Restructured Argentina Debt have filed suit in Brussels against Belgium-based bond settlement agency Euroclear and Bank of New York Mellon Brussels after interest payments owed to them were blocked by a US federal judge and the money returned to Argentina.

Christopher Clark from Latham & Watkins presented a memorandum of law to demand clarification on why the interest payments are being blocked. According to Clark, the Euro bonds are governed by entities outside the jurisdiction of the US District Court.

“At no point in the Euro Bonds’ payment chain do funds comprise US dollars, enter the United States, or flow through US entities,” wrote Clark.

The standoff comes after dissatisfied bondholders, who disagreed to tender their bonds in exchange for new securities, demanded a Manhattan District Court judge issue an injunction blocking interest payments to all bondholders until the original amounts owed to them were settled. The district court agreed to their demands and ordered the payment of US$1.3 billion, but Argentina has refused to comply.

US Federal Judge Thomas Griesa recently excluded bonds issued in Argentina and through Citibank outside the United States from the injunctions, because payments to these bondholders are governed by foreign law and the foreign parties that process them could face exposure if they comply with the US injunction. European bondholders are now left wondering why banks in Europe are being blocked from making payments to them.

Moreover, Belgium enacted a law in 2004 that aimed to protect Euroclear’s freedom to distribute funds to debt holders. The law states that no cash settlement can be held under sequestration, or otherwise blocked, by third parties.

Argentina is now in a “technical default” which could, after July 30, become an “event of default,” making its debt immediately due and payable.

The holdout creditors led by New York-based Elliott Management Corp.’s NML Capital Ltd unit and Argentinean negotiators will meet today in an attempt to resolve the impasse. Argentina is still within the 30-day grace period to try and reach a resolution before the official default.

Source: Latin American Herald Tribune.

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