The long-running dispute over the payment of
Argentina's sovereign debt, on which the South American nation
defaulted for the second time in July 2014, continues to be
particularly active.
On February 13, 2015, the Chancery Division of the English High
Court issued a ruling in a lawsuit brought by certain holders
of euro-denominated exchange bonds issued by the Republic of
Argentina during 2005 and 2010 debt restructurings seeking to gain
access to €225 million ($257 million) in interest payments set
aside to make payments on the bonds. The High Court held that such
funds are governed by English law because the bonds and the
governing trust indenture are governed by English law.
Back in February 2012, Judge Thomas Griesa of the U.S. District
Court for the Southern District of New York ruled that Argentina
was prohibited from making payments on exchange bonds without also
making payments on bonds held by holdout bondholders. In his
injunction, which was affirmed on appeal and declined review by the
U.S. Supreme Court, Judge Griesa also prohibited any entity from
"aiding and abetting" any violation of his order.
In his February 13, 2015, ruling, Mr. Justice David Richards made
a declaration to the effect that the earmarked funds are held by
the Bank of New York Mellon ("BNY Mellon") on trusts
governed by English law. The judge declined, however, to declare
that BNY Mellon's obligations and liabilities are unaffected by
Judge Griesa's 2012 injunction.
The English High Court's ruling effectively shuts Argentina
out of the international debt markets.
At a hearing held before Judge Griesa on February 17, 2015,
Citibank, N.A. ("Citibank") claimed that the February
2012 injunction blocking it from making payments on $2.3 billion
worth of dollar-denominated bonds governed by Argentine law would
lead to "catastrophic" consequences—including
criminal charges and potentially the loss of its banking license in
the South American country. Both Argentina and the Clearing House
Association LLC—an association of leading commercial banks
dedicated to protecting the integrity of the banking
system—supported Citibank's request for permission to
service the debt, warning that continuation of the payment bar
"would raise anew the question of whether bank customers can
trust their own bank to comply with the most basic banking and
custody obligation: paying customers their money." Holdout
bondholders from Argentina's 2005 and 2010 debt restructurings
countered that, far from being governed solely by Argentine law,
the bonds in question were marketed and sold around the world and
therefore should remain subject to the payment injunction.
Argentina's Minister of the Economy, Axel Kicillof, announced
on March 3, 2015, that "me too" investors who want
compensation for debt owed since the country's 2002 default
have lodged claims for between $7 billion and $8 billion in the
hope of gaining from Argentina's ongoing legal battle with
other holdouts. Judge Griesa responded that he would deal with such
claims filed by March 2 on the same schedule as those asserted by
holdout bondholders.
On March 12, 2015, Judge Griesa denied a request by Citibank to
vacate his July 28, 2014, order prohibiting Citibank from
processing payments on certain Argentine law bonds. Citibank had
argued that the bonds, which are denominated in U.S. dollars but
governed by local Argentine law, do not constitute "external
indebtedness" and therefore should not be subject to the
court's injunctions. In his opinion, Judge Griesa wrote that
"the operative paragraphs of the Injunction do not speak in
terms of 'external indebtedness,' and as a result,
Citibank's participation in making payments on exchange bonds
is prohibited." According to the judge, "[the] Injunction
prohibits 'participants in the payment process' from
assisting the Republic in making payments on exchange
bonds."
In a March 13, 2015, response to Judge Griesa's ruling
regarding future interest payments on the Argentine law bonds,
Argentina's economy minister stated that the order violates
basic legal principles and that Judge Griesa's decisions
"are not based on law" but reflect an "apparent bias
against Argentina." The statement was posted as counsel to the
holdout bondholders responded to a March 12 letter from Citibank
seeking a stay of the ruling.
On March 16, 2015, Judge Griesa denied Citibank's request for
a stay of his ruling blocking the bank from processing $2.3 billion
in bond payments for the government of Argentina. Later that day,
Citibank announced that its Argentina branch will exit the custody
business following threats from the Argentine government. According
to Citibank, it has been subjected to repeated threats that the
government would revoke its operating license and bring civil and
criminal charges if the bank does not pay holders of Argentine law
exchange bonds.
On March 20, 2015, however, Judge Griesa authorized Citibank to
make interest payments scheduled for March 31 and June 30 on $2.3
billion in Argentine law bonds. The judge also authorized Citibank
to exit its custody business in Argentina.
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