Judge lifts bar on debt service payment in Argentina case

A US judge gave Argentina a minor victory in its fight against hedge fund bondholders when he lifted a block on Citigroup processing a small debt service payment for the country before a September 30 deadline.
New York federal court judge Thomas Griesa lifted his block on the $5 million payment to holders of a small class of the country's debt, US dollar bonds issued under Argentina's laws, avoiding the country being called into default for the second time in two months.
Citigroup had argued that it was caught between two countries' laws -- Griesa's threat of contempt of court if it violates his ban on payments, and Buenos Aires' threat to prosecute the bank on criminal charges for not following through with its mandate to process the payment.
Griesa allowed the one-off payment by Citigroup, but otherwise maintained his ban on any payments to holders of the country's restructured bonds unless it pays the hedge funds for the $1.3 billion in unrestructured bonds that they hold.
The funds, which scooped up Argentine bonds on the cheap after it defaulted on nearly $100 billion in debt in 2001, refused to take part in the 2005 and 2010 debt restructuring with most of the country's creditors, which required a substantial "haircut" to the bonds' values.
The hedge funds, labelled "vulture funds" by Buenos Aires, have been fighting for years in US courts to be paid the full face value of their bonds, which will bring them huge profits.
But Argentina argues that would be unfair to the participants in the restructuring, and undermines the purpose of the restructuring.
Griesa's order had prevented the country from making a June 30 payment to holders of bonds that fall under US law, as well as some that come under European laws.
That put the country back in default when a grace period was up a month later, and locked up the scheduled $539 million payment in Bank of New York Mellon.
Argentina has also threatened Bank of New York Mellon if it does not pay the money out in its role as the official trustee for the debt, while Griesa said it would be socked with a contempt charge if it does, or if it returns the money to Argentina.
The ruling Friday to allow the payment by Citigroup had the support of the hedge funds, who reversed their position against it at the last moment for unclear reasons.
Griesa is meanwhile expected on Monday to review calls by the hedge funds to rule Argentina in contempt for its efforts to get around his payment ban by doing separate deals with bondholder to be paid outside the US jurisdiction currently required under the debt contract.