A Manhattan federal judge on Friday angrily condemned Argentina’s attempt to pay some of its bondholders in defiance of his court order, calling the country’s $539 million bank transfer an “explosive action.”
Federal District Judge Thomas Griesa, pounding his fist and interrupting Argentina’s lawyer during a 90-minute hearing Friday morning, said paying Argentina’s biggest group of bondholders without also paying a smaller group of so-called holdouts is “illegal” and “will not be permitted by this court.”
“This payment cannot be made and anyone who attempts to make it will be in contempt of court,” said Griesa, who ordered the return of the $539 million.
On Thursday, Argentina deposited the money with Bank of New York Mellon in Buenos Aires in anticipation of making a scheduled June 30 payment to the 93 percent of bondholders who agreed to debt swaps on the country’s defaulted debt in 2005 and 2010.
The South American republic wasn’t planning to pay $1.65 billion to hedge fund billionaire Paul Singer and other holdout bondholders at the same time, as the court has ordered.
Those bondholders, which Argentina calls “vultures,” demand to be paid in full and have won their case in the US courts, while the exchange bondholders accepted 25 cents to 30 cents on the dollar.
The 84-year-old Griesa, complaining that he was supposed to be on vacation Friday, told Singer’s lawyer, Robert Cohen of Dechert, to draft up an order saying that “the money should never have been paid and will be returned.”
Argentina made the payment, its lawyer Carmine Boccuzzi of Cleary Gottlieb said, because nonpayment is “not authorized by Argentine law” and officials who refuse to make one are subject to potential criminal charges in Argentina.
Griesa previously ordered that Argentina can’t pay exchange bondholders without also paying the holdouts.
The US Supreme Court has refused to hear Argentina’s appeal, leaving open the possibility that the country may default rather than pay the holdouts.
On Friday, Boccuzzi warned Griesa that the “floodgates” could open with “me-too” claims that would arise if Argentina pays the Singer group, which also includes Mark Brodsky of hedge fund Aurelius Capital and Thomas Kempner of Davidson Kempner Capital, whose Blue Angel fund is a plaintiff.
Exchange bondholders could also sue to be paid as much as the holdouts under a clause in their bonds, Boccuzzi told the judge.
Griesa acknowledged that “there’s a lot of litigation out there” but said “if there is a default, there’s going to be a lot more.”
He chastised Argentina for refusing to meet with Singer and its lawyers after he appointed a “special master” to handle the negotiations and urged Argentina to begin negotiating with Singer’s group and reach a settlement.
“I would hope all parties would participate,” he said. “What needs to be done is to figure out a way to maintain the status quo. Can we get back on track and have settlement negotiations?”