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U.S. Supreme Court takes no action on Argentina bonds case

By Lawrence Hurley

WASHINGTON (Reuters) - The U.S. Supreme Court on Tuesday took no action on Argentina's appeal of a lower court ruling in favor of hedge funds that refused to take reduced payments under a restructuring agreement the country reached with other bondholders after its 2002 default.

The Argentine bond case was not mentioned in a list of new cases the court agreed to hear ahead of its new term, which starts on Monday, October 7. The court met on Monday to decide whether to hear the case.

Based on the court's usual practice, Tuesday's development may mean either that the court will decline to hear the case or that it will ask the Obama administration to weigh in on whether the dispute is worth the court's attention

The court's inaction delays any decision over the appeal of an October 2012 ruling by the 2nd U.S. Circuit Court of Appeals in New York that the Argentine government had broken a contractual obligation to treat bondholders equally.

In two restructurings, in 2005 and 2010, creditors holding around 93 percent of Argentina's debt agreed to participate in debt swaps that gave them 25 cents to 29 cents on the dollar.

But bondholders led by hedge funds NML Capital Ltd, a unit of Paul Singer's Elliott Management Corp, and Aurelius Capital Management went to court, seeking payment in full.

In related litigation, the appeals court in New York. In August issued another ruling, upholding a lower court's order that Argentina pay $1.33 billion to the holdouts. The court stayed its decision pending Supreme Court review. Argentina also has asked the appeals court to reconsider its decision.

"Any Supreme Court decision that extends this case over time, it's good for Argentina and for the holders of its exchanged bonds, as it will temporarily avert the risk of a technical default," said Ignacio Labaqui, who analyses Argentina for New York-based Medley Global Advisors.

Argentine local bond prices edged slightly higher after the Court's announcement and the country's international bond spreads tightened 13 basis points, outperforming JP Morgan's Emerging Markets Bond Index Plus

"If the Supreme Court requests the opinion of the Solicitor General it will probably be welcomed by markets," Labaqui added. "But if the Court declines to take the case it will not necessarily be bad for Argentina, because the country is still litigating in the 2nd Circuit."

Opinion is divided on whether the legal showdown threatens to undermine future restructurings worldwide.

The Obama administration backed Argentina in the lower courts but has not indicated where it stands now that the case is before the high court.

The International Monetary Fund has voiced worry that a ruling against Argentina would make it more difficult for other countries to restructure their debt in times of economic crisis.

Holdouts call that an exaggeration given the near universal use of collective action clauses in new bond deals saying that a minority of investors would not be able to holdout if a super-majority of creditors agree to restructure.

The case now before the Supreme Court is Argentina v. NML Capital, 12-1494. It was the high court's first meeting in three months to decide what cases to accept.

(Additional reporting by Hugh Bronstein in Buenos Aires; Editing by Howard Goller, Andrea Ricci and David Gregorio)

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