A U.S. judge on Friday called Argentina's decision to make a sovereign debt payment in defiance of a court order an "explosive action" and told Bank of New York Mellon to return the money to the government.
U.S. District Judge Thomas Griesa in New York told lawyers representing Argentina and BNY Mellon that any attempt to make payment to bondholders without complying with his court is illegal.
"It cannot be done and it will not be permitted by this court. I want the banks involved to know that. This payment cannot be made and anyone who attempts to make it will be in contempt of this court," said Griesa, who was appointed to the court by President Richard Nixon in 1972.
On Thursday, Argentina deposited $539 million in BNY Mellon's account at the Central Bank of Argentina intended only for bondholders who participated in two sovereign debt exchanges in 2005 and 2010.
The deposit was made, Argentina said, in order to meet a June 30 coupon payment deadline. There is a 30 day grace period, however, before a default can be declared if exchange bondholders do not receive their money.
Argentina was ordered by Griesa in 2012 to pay holdouts, who did not participate in the debt exchange, $1.33 billion plus interest on unrestructured bonds stemming from the country's $100 billion default in 2001-2002. The order was denied a hearing by the U.S. Supreme Court on June 16, effectively upholding the holdout's victory in the U.S. 2nd Circuit Court of Appeals.
Holdout investors are led by Elliott Management's NM Capital Ltd and Aurelius Capital Management, two hedge funds that specialize in buying up deeply discounted or distressed debt and negotiating profitable settlements, often through the use of the courts.
BNY Mellon in court confirmed Thursday's deposit was made into its account and told Griesa it was seeking to comply with his orders.
"Those funds remain in that account. Nothing more has happened," BNY Mellon's lawyer Eric Schaffer of Reed Smith told Griesa.
Griesa's order says Argentina cannot pay exchange bondholders without also paying the holdouts at the same time under the pari passu, or equal treatment, clause in the original bond contract.
"The money should be returned to the republic. Simple as that," Griesa said, adding that Argentina should get back to the negotiating table. Earlier this week, the judge appointed New York financial trial lawyer Daniel Pollack as a special master to help facilitate a settlement between Argentina and the holdouts.
Pollack told Reuters via email he was in court during the hearing and said he was "making every effort to get the parties to the table."
— By Reuters