Sat | Dec 10, 2016

Argentina's debt battle arrives in London with High Court appeal

Published:Wednesday | November 5, 2014 | 12:00 AM

Elaine Moore and Benedict Mander

A group of investors in Argentine debt are appealing to the UK's High Court to unfreeze more than €200m deposited by the country in the Bank of New York Mellon.

Hedge funds, including Knighthead Master Fund and Quantum Partners, claim that because the euro-denominated bonds they own are governed by English law, they should not be subject to a New York court ruling earlier this year blocking interest payments.

The hearing, which began on Monday, refers to a 2012 ruling by US Judge Thomas Griesa, who decided that Argentina could not make payments to investors holding its overseas bonds unless it also paid so-called holdout investors, who rejected bond swaps in 2005 and 2010.

After failing to reach an agreement with holdout bondholders Argentina defaulted on its debt this summer, although it has tried to make payments to investors holding its restructured debt.

In June, Buenos Aires deposited €225m (US$280m) with trustee BNY Mellon for euro-denominated bondholders, but the bank was ordered by New York courts not to make the payments. The funds are currently held in a bank account in Argentina.

BNY Mellon, which Argentina has sought to replace as trustee, said it was not required to act in a way that would place it in contempt of the New York court.

The case comes days after a group of Italian investors lost their bid to retrieve interest payments made by Argentina and held by BNY Mellon. Behind these claims lies the question of how far US court jurisdiction should reach.

Argentina and the holders of its restructured debt have tried to reduce the scope of Judge Griesa's equal treatment "pari passu" ruling and free up funds that are currently in limbo under several jurisdictions.

This month, a US appeals court dismissed Argentina's appeal of Judge Griesa's order preventing BNY Mellon from transferring funds to holders of the restructured debt that is not governed by US law.

A hearing with Judge Griesa is due on December 9 to consider whether Citigroup should be allowed to process an interest payment Argentina is scheduled to make on December 31 on some of its restructured bonds issued under Argentine law.

A federal judge in Argentina also denied a petition this month from investors seeking access to funds frozen in BNY Mellon, and the investors are now awaiting a decision from the court of appeals.

There is also a case pending in Belgium, where a group of investors have sued Bank of New York Mellon Brussels and Euroclear Bank in Belgium in an attempt to receive payments. A hearing is expected in 2015.

Additional reporting by Jane Croft

(c) 2014 The Financial Times Limited