BUENOS AIRES--A group of hedge funds that sued Argentina in the
U.S. has agreed to support a request by a Citigroup Inc. unit to
allow the bank to make an interest payment due Tuesday to holders
of restructured bonds governed by Argentine law, people familiar
with the matter said Thursday.
Allowing Citibank to make the $5 million payment should ease the
pressure on the parties and give the court more time to litigate
new legal issues recently raised by Citibank, before Argentina has
to make a $262 million interest payment on the local-law bonds on
Dec. 31, one of people said.
Citibank couldn't immediately be reached for comment. The bank
has said employees at its Argentine unit could face "severe civil,
regulatory and criminal risks" if the bank didn't make the
payment.
U.S. District Judge Thomas Griesa, who has been overseeing a
yearslong dispute between the hedge funds and Argentina, is
expected to decide at a hearing on Friday if Citibank can make the
payment.
Last week, federal appeals court judges said Argentina was
refusing to obey U.S. law and that the country was essentially
holding a gun to the head of Citibank's branch in Argentina, which
was trying to comply with Argentina and U.S. law.
Thursday's development could ease tensions, at least
momentarily, between Argentina and a small group of hedge funds led
by Elliott Management Corp.'s NML Capital Ltd. and Aurelius Capital
Management LP, which are suing to collect on debt Argentina
repudiated in 2001. The so called holdout creditors have
successfully argued in U.S. courts that the Argentina owed them
full payment on those defaulted bonds.
Argentina's refusal to pay the holdouts led Judge Griesa to
block banks, including Citibank, from transferring Argentina's
interest payments to investors who own bonds that Argentina issued
as part of the restructuring of its defaulted debt, until the
country pays hedge funds the roughly $1.6 billion they have won in
litigation.
Judge Griesa's order led Argentina to default on some of its
current bonds on July 30. Argentina has repeatedly accused the
judge of siding with the hedge funds and said it wouldn't comply
with his order because doing so would violate Argentine law and add
billions of dollars to the country's debt by forcing it to make
similar concessions to investors who own restructured bonds.
Argentina's latest default could eventually affect almost $29
billion in bonds the country issued overseas as part of heavily
discounted restructurings in which investors swapped about 92% of
eligible defaulted bonds for new debt in 2005 and 2010.
The default is also preventing President Cristina Kirchner's
government from borrowing abroad to alleviate hard currency
shortages that are pushing the economy deeper into recession.
Argentina has moved to sidestep Judge Griesa's ruling that
blocked bond payments by passing a law to change the jurisdiction
of its bonds that are currently governed by U.S. and U.K. law to
Argentina or France. If the plan were to work, Argentina would be
able to pay the restructured bondholders without having to obey
Judge Griesa's order to also pay the hedge funds. Judge Griesa,
however, has repeatedly said this would be illegal.
Nicole Hong, Matt Day and Ken Parks contributed to this
article.
Write to Taos Turner at taos.turner@wsj.com
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