U.S. court removes fear of an Argentine default, for now
Argentina won a reprieve against having to pay $1.33 billion next month to "holdout" investors who rejected a restructuring of its defaulted debt and have waged a long legal battle to get paid in full.
A U.S. appeals court granted an emergency stay order on Wednesday that gives Argentina more time to fight a debt ruling favoring the holdout creditors, and eases investor fears of a new default as early as next month.
Last week, U.S. District Judge Thomas Griesa ordered Argentina to deposit the $1.33 billion payment by December 15 for investors who rejected two restructurings of bonds left over from its massive 2002 default.
The South American country swiftly appealed, but fears rose of a technical default on payments to bondholders who agreed to take a steep haircut in two debt exchanges in 2005 and 2010.
However, the 2nd U.S. Circuit Court of Appeals put off any decision until well into 2013 on whether or not Argentina will have to pay investors who did not participate in those restructurings, which paid less than 30 cents on the dollar.
Both Argentina and bondholders who took part in the exchanges filed appeals to the 2nd Circuit against Griesa's order.
The appeals court will hear oral arguments on February 27. Its decision on Wednesday effectively halts the order by Griesa that could have led to a technical default on approximately $24 billion worth of debt.
"The threat of default has been removed for now," said Ignacio Labaqui, who analyzes Argentina for emerging markets consultancy Medley Global Advisors.
"This is really good news for Argentina and exchange bond holders," he added. "The ruling came faster than expected, which sends the message that Griesa's decision may have been too harsh, from the point of view of the appeals court."
Lead holdout investors Elliott Management Corp and Aurelius Capital Management both declined to comment on the 2nd Circuit's decision.
There was no immediate reaction from the Argentine government. Lawyers for the holders of Argentina's exchanged bonds welcomed the 2nd Circuit's order.
"The stay ensures that the exchange bondholders will receive their rightful payments through December, and until the Court can carefully consider the significant issues and interests that are involved before rendering its final ruling," said the statement from law firm Boies Schiller & Flexner LLP.
(Additional reporting by Basil Katz and Nate Raymond in New York and Hugh Bronstein in Buenos Aires; Editing by Kieran Murray, Andrew Hay)