Argentina: Appeals court freezes debt repayment, quelling default fears
November 26, 2012
The confrontation continues between Argentina and the so-called hold-outs, a group of bondholders who refused to take part in the 2005 and 2010 restructurings of the country's 2001 defaulted debt.
On 29 November, the Appeals Court put on hold a 21 November ruling by Judge Thomas Griesa of the United States District Court in Manhattan, which barred Argentina from making a USD 3.4 billion payment to holders of restructured debt, unless it paid USD 1.3 billion into an escrow account for the litigating creditors. Judge Griesa - who claims that Argentina has violated the pari passu provision included in its 2001 defaulted bonds, which grants equal treatment to all bondholders - had already made a similar ruling in February, which was later upheld by the Appeals Court in October.
An immediate enforcing of the ruling would have had severe implications for Argentina's creditworthiness. The decision states that Argentina cannot honour its obligations with the exchange bondholders without making a payment to the hold-outs as well. However, according to national law, Argentinean authorities are not allowed to renegotiate the exchange terms with hold-outs, meaning that the government cannot legally comply with Griesa's order, which would then put the country in a technical default.
In the wake of Griesa's ruling, international rating agency Fitch's downgraded the country's credit rating on 22 November by five notches, to CC from B, reflecting its view of a probable default. The Appeals Court decision, which ruled in favour of Argentina's emergency stay request, has granted the country some additional time by temporarily freezing the debt repayment and scheduling a new hearing between the parties involved for 27 February.
Argentina obtained a second legal victory when, on 4 December, the Appeals Court also refused to order the country to post a USD 250 million security deposit while it seeks to overturn the 21 November ruling. The security deposit had been requested by the hold-outs as proof that Argentina is acting in good faith with the court.
Author: Armando Ciccarelli, Head of Data Solutions