The $1.65 billion standoff between Argentina and hedge fund mogul Paul Singer is threatening to take a hostage: the Bank of New York Mellon.
Argentina deposited $539 million in BoNY to make its June 30 quarterly payment to bondholders who agreed to debt swaps years ago.
But Manhattan federal court judge Thomas Griesa on Friday forbade the bank from making that payment — citing his ruling that Argentina pay Singer and other holdout bondholders their $1.65 billion concurrently.
Meanwhile, Argentina on Wednesday said the bank is continuing to “breach its obligations by not allowing all bondholders to get paid.”
The money sits in a BoNY vault in Buenos Aires — and BoNY is feeling squeezed.
One way out of the jam for BoNY would be for Argentina and Singer to reach a deal on what Singer is owed. The two sides begin talks on July 7.
Argentina has until July 30 to reach a deal — or risk defaulting on its debt.
BoNY is also taking flak from the holdouts, whose lawyer said in a Wednesday letter to Griesa that holding onto the money “would leave in place Argentina’s brazen violation” of court orders.
Last Friday, Griesa had asked Singer’s lawyers to write up an order that he would sign ordering BoNY to send the money back.
But after receiving a letter from BoNY’s lawyer on July 1, Griesa declined to sign the order, which he received the same day, according to sources familiar with the situation.
Griesa gave BoNY until July 10 to explain its situation, the sources said.
“Ordering [BoNY] to return the funds to Argentina could expose [BoNY] to litigation risk,” BoNY lawyer Eric Schaffer wrote.
About half of the money is scheduled to go to Euro bondholders, who argue that they are outside the jurisdiction of US courts.
BoNY said that even if it wanted to send the money back, it can’t do so without specific wiring instructions from Argentina for “a specific account at a specific bank.”