U.S. judge not ready to rule on Argentine bond payments via Citigroup

Nick Brown
April 24, 2015

(Reuters) - A U.S. judge on Tuesday said he would not yet rule on whether Citigroup Inc can process interest payments by Argentina on bonds issued under its local laws following the country's 2002 default.

U.S. District Judge Thomas Griesa told the lawyers for Citigroup and holdout investors in a hearing in New York that he would not issue a decision on Tuesday afternoon.

The hearing marked the latest courtroom tussle over whether Griesa has authority to block Citigroup's branch in Argentina from processing payments on bonds issued under the country's local laws.

Argentina defaulted in July after refusing to honor Griesa's court orders that it pay $1.33 billion plus interest to holdout bondholders when it paid holders of bonds swapped during the country's 2005 and 2010 debt restructurings.

While the injunction has been in place, Griesa has since last year allowed Citigroup to process three interest payments while holding off on a final determination on whether it can always do so.

On Tuesday he said: "The injunction does not just enjoin the Republic, but also the participants in the bonds. The issue before me is to decide whether Citibank is a participant."

Legal counsel for Citibank, Karen Wagner of Davis, Polk & Wardwell told U.S. District Judge Thomas Griesa that the injunction would put Citibank at risk of breaking Argentine law.

"There's nothing to be gained from enforcing the injunction. There will be no benefit to the public and Citibank will be in danger. It seems fundamentally unfair and inequitable to put Citi in that position," Wagner argued.

Edward Friedman, counsel for holdout bond investors, said the debt in question was offered not just to Argentine investors.

"Were these bonds offered exclusively in Argentina?' And what the evidence shows is overwhelmingly they were not," said Friedman, of Friedman Kaplan Seiler & Adelman.

He said offers were made in countries include Denmark, Italy, Spain.

Griesa, at the end of the 2-1/2 hour hearing, noted the challenge before him of determining Citibank's role in an environment where there was no "set of financial transactions in the regular way."

"So here we are, here I am as a judge, dealing with instruments and questions of how things would go in a regular way. But nothing is going in a regular way now. And that is a problem we will have to address," Griesa said. (Additional reporting by Nate Raymond; Writing by Daniel Bases and Noeleen Walder; Editing by Chris Reese and Gunna Dickson)