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Argentina asks U.S. Supreme Court to hear bonds case

Pedestrians walk past the Argentina's Central Bank building in Buenos Aires August 27, 2013. REUTERS/Enrique Marcarian
Pedestrians walk past the Argentina's Central Bank building in Buenos Aires August 27, 2013. REUTERS/Enrique Marcarian

By Lawrence Hurley and Kevin Gray

WASHINGTON/BUENOS AIRES (Reuters) - Argentina filed an appeal to the U.S. Supreme Court on Tuesday seeking to reverse lower court decisions ordering the country to pay $1.33 billion to hedge fund creditors in a case Argentine officials warn could force it to default on its sovereign debt.

The appeal followed a November 18 decision by the 2nd U.S. Circuit Court of Appeals in New York denying Argentina's petition for a rehearing in a decade-long legal battle with bondholders who refused to accept the country's two debt-restructuring offers after the country defaulted on $100 billion in 2002.

The litigation has heightened investor concerns about a potential debt crisis in South America's second-largest economy, which is reeling from a 17 percent currency devaluation last month that sent shudders through global markets.

The Argentine government said through its embassy in Washington the lower court orders "threaten the well-being of Argentina and its citizens, as well as of the countless holders of performing Argentine debt, many of whom are U.S. institutional investors and individuals."

Argentina is seeking to reverse the rulings that say the country must make full payment to the "holdout" creditors led by hedge funds Aurelius Capital Management and NML Capital Ltd, a unit of billionaire Paul Singer's Elliott Management Corp.

Argentina argues the funds bought the debt at a deep discount after the default and sought to thwart the country's efforts to restructure its debt in which it paid its creditors less than full value of the bonds.

Creditors holding about 93 percent of Argentina's bonds agreed to participate in the two debt swaps in 2005 and 2010, accepting between 25 and 29 cents on the dollar.

The case is being closely watched because of its potential impact on future sovereign debt restructurings.

"Argentina's arguments for prolonging this dispute are without merit and entirely unnecessary," Jay Newman, a senior portfolio manager at Elliott, said in a statement. "As we have stated many times, if Argentina were willing to talk to its creditors, this dispute could be resolved quickly."

In their rulings, the lower courts said Argentina must pay the bondholders who refused to participate in the debt restructuring along with those who did.

SOVEREIGN IMMUNITY

Lawyers for Argentina argue the rulings violate sovereign immunity granted under U.S. federal law by dictating to a country who they should make payments to.

Argentine President Cristina Fernandez has said her government will continue to pay creditors holding the country's restructured debt, but will never pay the holdout bondholders whom she has called "vultures."

Argentina's continued refusal to pay could result in U.S. courts enforcing injunctions blocking payment overseas to bondholders who participated in prior restructurings, possibly causing a new default.

In its appeal to the Supreme Court, Argentina suggested the high court ask the New York Court of Appeals to weigh in on a question of how to interpret state law, based on the fact that the bonds were issued under New York law.

If the Supreme Court were to seek the New York court's opinion, that additional legal procedure would delay the justices' consideration of whether to take the case.

If the justices agree to hear the case, a decision could come between October, when the next Supreme Court term begins, and June 2015, the end of the term.

In November 2012, U.S. District Judge Thomas Griesa ordered Argentina to pay the $1.33 billion into a court-controlled escrow account.

A three-judge panel of the 2nd Circuit upheld Griesa's order in August, but put it on hold pending an appeal to the Supreme Court. If the high court declines to hear the case, the appeals court ruling would be left intact.

(Additional reporting by Alejandro Lifschitz in Buenos Aires,; Editing by Howard Goller, Amanda Kwan and Mohammad Zargham)

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