US Court Clears Way For Argentina Bond Swap

by Glen Shapiro, LawAndTax-News.com, New York

18 May 2005

The US federal 2nd Circuit Court of Appeals agreed last Friday that Argentina can proceed with a major $7 billion debt restructuring, although some bond creditors have won rulings against Argentina in US and foreign courts.

Argentina defaulted on up to $100bn of bonds in 2001 after its economy collapsed, and has offered 25 cents in the dollar to 700,000 bondholders who hold 99 different securities in eight currencies. Some creditors, led by NML Capital Ltd., a hedge fund based in the Cayman Islands, have opposed the bond swap in court

Friday's ruling will result in the lifting of an interim freeze imposed last month by a US court on a $7bn tranche of bonds, which are deposited at Bank of New York, the exchange agent for the debt exchange launched by Argentina. Judge Thomas Griesa in Manhattan had ruled that the freeze could be lifted, but stayed his ruling pending the completion of the appeals process.

The Appeals Court said that Judge Griesa had provided sufficient reasoning to allow Argentina to begin the first phase of the bond-swap program. The appeals court said it was unnecessary to rule definitively on any of the legal issues in dispute. Even if Griesa was wrong on some issues, it said, "this is not a situation where the court's exercise of discretion rested on an arguably incorrect view of the law."

"We're disappointed, and we're considering our options," said David W. Rivkin, attorney for the creditors. The government of President Nestor Kirchner has been pushing for completion of the bond restructuring. The Argentine economy expanded by 8.8% last year.

Apart from US rulings totalling more than $1bn against Argentina, the country is also facing an action brought by the Italian Argentine Credit Committee, a group of about 8,000 investors.

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