NY judge urges Argentina to negotiate, saying talks can eliminate imminent default threat

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NEW YORK, N.Y. – Argentina can avoid defaulting on debt payments due Monday by negotiating with U.S. hedge funds that are owed $1.65 billion, a federal judge said Friday as he all but pleaded for the South American nation to engage in talks.

“Get the republic to the table,” U.S. District Judge Thomas P. Griesa told lawyers as he adjourned a hearing. It had been hastily called to address Argentina’s attempt to pay $832 million to bondholders who swapped their bonds for bonds with reduced value after Argentina’s economy collapsed in 2001. The judge said it would be illegal for Argentina to make that payment to the majority of its bondholders without also paying the U.S. hedge funds that refused to participate in bond swaps in 2005 and 2010.

Argentina’s next installment to the majority of its creditors is due Monday, though the government has a 30-day grace period after that to avoid going into a catastrophic default.

A lawyer for the Bank of New York Mellon said it had received $539 million from Argentina for distribution to the bondholders who had exchanged their bonds for lesser value ones. Griesa ordered the bank to return the money to Argentina.

“This payment is illegal and will not be made,” Griesa said. “This payment cannot be made and anybody who attempts to make it will be in contempt of court.”

The lawyer said the bank would not distribute the money to bondholders because it would violate Griesa’s orders.

Griesa said he appointed a special master this week to facilitate talks because Argentina indicated through its lawyers that it planned to negotiate for the first time with the U.S. bondholders.

He said he believed some discussions had occurred and that there were talks about how to prevent Argentina from facing default on Monday.

“A special master could have figured out how to have that done,” Griesa said.

But he said Argentina instead chose to take “explosive action” by trying to make the $832 million payment, disrupting the negotiating process.

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