Citibank Seeks Permission to Make Argentine Bond Payment

Bob Van Voris
March 30, 2015

(Bloomberg) -- Citibank NA is seeking a U.S. judge's permission to process March 31 payments on a group of Argentine bonds, saying it isn't subject to a 2012 court ruling that blocks the country from paying its performing debt.

Blocking the payment would force the bank to violate Argentine law and threaten its ability to do business in the country, Karen Wagner, a lawyer for Citibank, told U.S. District Judge Thomas Griesa at a hearing Tuesday in New York. Griesa didn't immediately rule.

Argentina defaulted on $95 billion of debt in 2001. Holders of about 92 percent of the repudiated debt agreed to take new bonds, at a discount of about 70 percent, in restructurings in 2005 and 2010. But some individual investors and hedge funds, including Paul Singer's NML Capital, sued for full payment in the U.S., the forum selected by Argentina in the original bond agreements.

Griesa has said Argentina can't pay holders of its performing debt without also paying the group led by NML Capital that's owed $1.7 billion on the country's defaulted bonds. Citibank claims the bonds on which it expects to receive the interest payment, dollar-denominated Argentina law bonds payable in the South American nation, shouldn't be included in the order barring payment.

Trigger Default

Argentina's refusal to make a payment on the defaulted bonds triggered a July 30 default when it was blocked from making a $539 million interest payment on restructured debt.

Griesa's 2012 order "does not apply to Citibank and does not apply to the Argentina law bonds," Wagner argued. Carmine Boccuzzi, a lawyer for Argentina, supported the bank's arguments.

Edward Friedman, a lawyer for hedge funds that hold the defaulted bonds, urged Griesa to rule that Citibank can't process the interest payments.

Citibank argued that the bonds are different from the "exchange" bonds the country issued to holders of its defaulted debt and for which Bank of New York Mellon Corp. is the trustee. The judge allowed Citibank to process payments on the Argentine law bonds in June, September and December while the parties submitted arguments on the matter.

Earlier in the case, Wagner argued that Citibank faces "a gun to our head."

Last week, pressure from NML scotched plans for Argentina to issue more than $2 billion of local-law bonds through international banks.

Argentina's economy ministry said in an e-mailed statement that the judge, during four hearings in the past eight months, recognized the arguments that bonds under Argentine law aren't under his jurisdiction.

"Griesa keeps favoring vulture funds and once again said nothing," according to the statement.

The case is NML Capital Ltd. v. Republic of Argentina, 08-cv-6978, U.S. District Court, Southern District of New York (Manhattan).