U.S. judge says Argentina debt swap plan violates court order

Fri Oct 4, 2013 3:20am EDT
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By Nate Raymond

NEW YORK (Reuters) - Argentina's proposal to use a debt swap to pay some of its creditors would violate a U.S. court injunction, a judge in New York said on Thursday.

The order by U.S. District Judge Thomas Griesa came in response to a proposal in August by Argentine President Cristina Fernandez that would enable her government to keep paying creditors who participated in restructurings after the country's $100 billion default in 2002.

Argentina's government proposed allowing a voluntary swap of foreign debt in exchange for bonds governed by local law after a U.S. appellate court ruling in August upholding an earlier Griesa decision requiring the country to pay $1.33 billion in favor of holdout bondholders.

Implementation of Fernandez's plan, or anything similar, would violate the earlier injunction, Griesa said in his order, which he said was issued "for the avoidance of doubt" over his court's position on Fernandez's plan.

The decision further complicates Argentina's strategy in a case that could ultimately go before the U.S. Supreme Court and has created worries about a potential default by South America's second-largest economy.

During two restructurings in 2005 and 2010, holders of about 93 percent of Argentina's debt agreed to swap their bonds in deals giving them 25 cents to 29 cents on the dollar.

But bondholders who did not swap, led by hedge funds NML and Aurelius Capital Management, instead went to court in New York seeking payment in full.

Argentina calls these bondholders vultures and has vowed not to pay them.   Continued...

Argentina's President Cristina Fernandez addresses the 68th United Nations General Assembly at UN headquarters in New York September 24,2013. REUTERS/Justin Lane/Pool