Judge In $2.3B Argentina Bond Spat Mulls Citi Injunction

Max Stendahl
March 3, 2015

Law360, New York (March 03, 2015, 6:51 PM ET) -- A New York federal judge on Tuesday deferred a ruling on whether to block Citibank NA from making payments on some $2.3 billion worth of bonds governed by Argentine law, after an attorney for the bank lambasted the injunction as "fundamentally unfair."

U.S. District Judge Thomas Griesa heard more than two hours of arguments on whether a previous injunction should block Citibank from processing bond payments in a legal dispute stemming from Argentina's 2001 default. In the suit, a group of investors that bought debt and later rejected the Argentine government's restructuring offers are seeking to be made whole.

During Tuesday's hearing in Manhattan court, Karen Wagner, a lawyer for Citibank, said the bank would face "great danger" if it was forced to comply with the injunction. Citibank could lose its banking license in Argentina and its employees could face criminal sanctions, Wagner said.

"The risk is very real, but there is nothing to be gained by enforcing such an injunction," she told Judge Griesa. "It seems fundamentally unfair and inequitable to put Citibank in such a position."

An attorney for Argentina also urged the judge to allow Citibank to service the debt, reasoning that the bonds at issue were offered exclusively in Argentina and therefore fell outside the scope of the injunction.

But Edward Friedman, an attorney for plaintiff-investors including Aurelius Capital Master Ltd., said the bonds had actually been offered in several other countries, including the U.S., Germany, Denmark and Italy. Friedman also noted that the injunction barred all "participants" in the bond payment process from aiding and abetting any violation of the injunction, including making payments on the bonds.

"Clearly Citibank is a participant, within the definition of participant in the injunction," Friedman said.

The plaintiffs, including hedge funds Aurelius and NML Capital Ltd., bought Argentine sovereign debt at a discount after the country defaulted on $100 billion in bonds in 2001. The funds refused to swap them out in restructurings in 2005 and 2010, instead suing in the U.S. for full repayment.

Judge Griesa has said that Argentina can't pay bondholders that agreed to debt restructurings unless it also makes a ratable payment to the "holdout" hedge funds. The Second Circuit upheld that finding, and the U.S. Supreme Court declined to take up Argentina's appeal.

The injunction that has drawn Citibank's ire dates to 2012. It requires Argentina to pay the plaintiffs if it services bonds at issue in the sprawling litigation.

In a separate letter to Judge Griesa on Tuesday, a group of investors holding euro-denominated bonds issued by Argentina and governed by English law urged the court to deny any additional injunctions to creditors who assert claims after April 1. The investors described themselves as "innocent third parties" who had been deprived of payments.

Citibank is represented by Davis Polk & Wardwell LLP.

Argentina is represented by Cleary Gottlieb Steen & Hamilton LLP.

The Aurelius plaintiffs are represented by Friedman Kaplan Seiler & Adelman LLP. NML Capital is represented by Gibson Dunn & Crutcher LLP.

The case is NML Capital v. The Republic of Argentina, case number 1:08-cv-06978, in the U.S. District Court for the Southern District of New York.

--Additional reporting by Pete Brush. Editing by Rebecca Flanagan.