UPDATE 2-Argentina loses U.S. appeal in $1.33 bln bondholder fight
NEW YORK, Aug 23 (Reuters) - Argentina on Friday lost its appeal of a U.S. judge's order requiring it to pay $1.33 billion to hedge funds that refused to go along with two of the country's debt restructurings.
But the 2nd U.S. Circuit Court of Appeals delayed implementing its decision pending a ruling by the U.S. Supreme Court, postponing resolution for up to a year or more and giving relief to worried investors.
The case stems from Argentina's historic default on its debt in 2001. In two restructurings, in 2005 and 2010, creditors holding about 93 percent of Argentina's debt received 25 cents to 29 cents on the dollar.
Dissident bondholders led by NML Capital Ltd, a unit of Paul Singer's Elliott Management Corp., and Aurelius Capital Management objected, arguing that they should be paid in full.
Argentina, which has called the holdouts "vultures," has said that if it is forced to pay the dissidents, future sovereign restructurings would be impossible to achieve.
U.S. courts have tended to agree with the dissidents.
In October 2012, the 2nd Circuit said Argentina violated an equal treatment clause in the contracts governing its bonds.
In November 2012, U.S. District Judge Thomas Griesa in Manhattan ordered Argentina to pay $1.33 billion into a court-controlled escrow account by the time of its next interest payment to bondholders who agreed to participate in the restructurings.
Friday's ruling upheld that decision.
U.S. Circuit Judge Barrington Parker wrote that the court believed "it is equitable for one creditor to receive what it bargained for, and is therefore entitled to, even if other creditors, when receiving what they bargained for, do not receive the same thing.
"Because the district court's decision does no more than hold Argentina to its contractual obligation of equal treatment, we see no abuse of discretion," Parker added, writing for a three-judge panel.
The court stayed its decision pending Supreme Court review of the case, which could take several months. Investors had been nervous because Argentina has said it will defy U.S. court orders to pay the holdout investors, raising the prospect that it could go into default, and Friday's stay appeared to buy some time.
"The court's decision against Argentina is what we have been expecting," said Stuart Culverhouse, head of research at Exotix in London. "Market disappointment may be tempered though by the continuation of the stay with the Supreme Court appeal."
Argentine Economy Minister Hernan Lorenzino, on a trip to Chile on Friday, declined to comment on the ruling.
The perceived risk of owning Argentine bonds relative to U.S. Treasuries fell slightly after the decision. Investors demanded about 10.11 percentage points extra yield to own Argentine bonds, down from about 10.23 percentage points before the decision. Argentine stocks rose after the ruling.
Friday's ruling rejected Argentina's arguments that the order to pay the holdout bondholders would unjustly hurt itself, exchange bondholders, participants in the bond payment system and the public.
Sean O'Shea, a lawyer for a group of bondholders, including Gramercy Funds Management LLC, who participated in the earlier debt swaps, in a statement said the opinion "unfortunately glosses over" the impact on his clients.
The circuit court rejected the exchange bondholders' claim that a ruling affirming Judge Griesa's ruling would prevent them from getting paid, based on Argentina's refusal to pay the holdouts.
"This type of harm - harm threatened to third parties by a party subject to an injunction who avows not to obey it - does not make an otherwise lawful injunction 'inequitable,'" Parker wrote.
The court also was not persuaded by Argentina that requiring it to pay the holdouts would have dire consequences for the capital markets and global markets.
Parker called the consequences predicted by Argentina "speculative, hyperbolic, and almost entirely of the Republic's own making."
While Argentina and its supporters argued that Griesa's order would threaten future sovereign debt restructurings, Parker said this was an "exceptional" case with little relation to future transactions and involving a "uniquely recalcitrant debtor."
"Ultimately, though, our role is not to craft a resolution that will solve all the problems that might arise in hypothetical future litigation involving other bonds and other nations," Parker wrote.
A spokesman for NML did not respond to requests for comment, while a spokesman for Aurelius declined comment.
The case is NML Capital Ltd et al v. Republic of Argentina, 2nd U.S. Circuit Court of Appeals, No. 12-105.