Argentina suffered a stinging blow late on Wednesday, when a New York federal judge, citing threats by the country's leaders to defy his rulings in a decade-old dispute over defaulted sovereign bonds, ordered immediate payment.
In an ruling delivered just as the United States headed off for its Thursday Thanksgiving holiday, U.S. District Judge Thomas Griesa rejected Argentina's request to maintain his previous order halting payments to holdout investors who did not participate in two bond exchanges of defaulted sovereign debt.
The ruling is the latest development in a litigation saga that has lasted more than ten years and now appears to be favoring holdout bond investors such as Elliot Management Corp's NML Capital Ltd and Aurelius Capital Management.
If Griesa's ruling is upheld and Argentina chooses to defy him, U.S. courts could ultimately inhibit debt payments to creditors who accepted the terms of the restructuring, out of consideration for investors who rejected Argentina's terms at the time.
This would trigger a technical default on approximately $24 billion worth of debt issued in the 2005 and 2010 exchanges.
Last week, Argentina, which defaulted on its bonds in 2002, asked Griesa to keep his stay order in place while the U.S. 2nd Circuit Court of Appeals for New York considered the country's request for a revisitation of an unfavorable ruling in October.
Griesa wrote that he would ordinarily leave his order in place pending a ruling from the 2nd Circuit. However, he concluded this was not possible given comments from Argentine officials, including President Cristina Kirchner, that Argentina would not pay anything to the holdout bondholders.
Given that Griesa's latest decision still needs the final blessing of the 2nd Circuit, he ordered that rather than Argentina paying the plaintiffs directly, it should deposit the money in an escrow account by Dec. 15.
Griesa was unconvinced by Francisco Eggers, Argentina's National Director of the National Bureau of Public Credit, who submitted a signed affidavit last week saying the government would abide by the court's rulings and would not seek to evade its directives.
After the October decision, President Fernandez said her country would not pay "one dollar to the vulture funds." This is her term for holdout investors who buy distressed or defaulted debt and then sue in international courts for full payment.
Argentina is due to pay bondholders who participated in two debt restructurings in 2005 and 2010 approximately $3.14 billion in interest payments next month and not again until March 2013.
