* Appeal challenges ruling for holdout creditors
* Argentina says order would harm future debt swaps
* Federal appeals court in NY to consider Argentina case
NEW YORK, Dec 29 (Reuters) - Argentina is urging a U.S.
appeals court to reverse an order requiring the country to pay
$1.33 billion to creditors who did not participate in its two
debt restructurings, a legal case that could have huge
ramifications for global debt markets.
Lawyers for Argentina's government said in court papers
filed late on Friday that a trial judge was "wrong to ignore the
chorus of voices" who opposed his November order on payments to
so-called "holdout" creditors.
Those payments, to a court-controlled escrow account, would
threaten the service of $24 billion in restructured debt,
Argentina's lawyers wrote in papers filed in the 2nd U.S.
Circuit Court of Appeals in New York.
"There is no authority permitting a U.S. court to order a
sovereign to bring its immune assets into the United States in
order to 'turn over' or distribute them to its creditors,"
lawyers for the Argentine government said in the 69-page filing.
The appeals court is expected to decide next year whether
to force Argentina to pay the $1.33 billion to investors in the
defaulted debt. The decision could have broad impact on the
ability of governments to raise money by selling bonds and on
strained countries' response to economic crises.
The case stems from Argentina's $100 billion sovereign debt
default 11 years ago. Argentina is trying to avoid paying the
holdout creditors, who refused to take part in massive debt
restructurings in 2005 and 2010.
About 92 percent of the bonds were restructured, giving
holders between 25 cents and 29 cents on the dollar.
But the holdouts, led by Elliot Management Corp affiliate
NML Capital Ltd and the Aurelius Capital Management funds,
demanded to be paid in full. Argentina calls the holdouts
"vultures" and has resisted.
In the papers filed on Friday, Argentina said it is willing
to resolve the litigation by reopening the restructuring offer,
a move that would require legislative permission but that would
likely be rejected by plaintiffs.
"The executive is prepared to once again present to Congress
a proposal that definitively treats all holdout creditors on the
same terms as participants in the Republic's 2010 exchange
offer," the filing says.
"The Republic has already made two debt restructuring offers
that plaintiffs chose to reject. It cannot present a proposal
that treats holdout creditors better than exchange bondholders."
In a separate court filing, lawyers for holders of
restructured bonds said that holdouts should not be offered
better terms than "innocent" bondholders who took part in the
swaps. The restructured bondholders include funds managed by
Gramercy Financial Group LLC and BlackRock Inc,
according to the court papers from the group.
The case has run for years in U.S. courts. Oral arguments
before the 2nd Circuit on the appeal are set for Feb. 27, 2013.
A decision against Argentina would deal a setback to
President Cristina Fernandez, who is trying to avert the fallout
of a potential technical default on tens of billions of dollars
In a statement late on Friday, an NML spokesman said
Argentina was well placed to compensate the holdouts, citing its
"more than $43 billion in foreign currency reserves" and
billions more in other resources.
"Today's filing by the Republic once again demonstrates
Argentina's irrational persistence in evading its contractual
obligations and the orders of U.S. courts," said Peter Truell, a
spokesman for NML.
There was no immediate reaction comment from Argentina.
Also on Friday, the U.S. government filed a
friend-of-the-court brief in support of Argentina's bid for the
appeals court to reconsider its October ruling that found
Argentina had improperly discriminated against bondholders who
did not participate in the debt swaps.
The U.S. government said countries needed leverage to garner
broad creditor support for a restructuring. It cited the recent
debt exchange in Greece as an example of a situation in which
holdouts can threaten orderly bond restructurings.
Following the appeals court's October decision, U.S.
District Judge Thomas Griesa in Manhattan on Nov. 21 commanded
Argentina to put the payments for the holdouts into escrow by
But on Nov. 28, the 2nd Circuit gave Argentina a reprieve,
saying it did not need to make the escrow payment for now.
The battle has even extended to the 2-1/2 month seizure of
the Argentine naval vessel ARA Libertad in Ghana at the request
of NML. The boat was freed on Dec. 19 following a ruling by an
international admiralty tribunal.
In its court papers, Argentina said that if Griesa's orders
were allowed to stand, "we may very well see the end of such
restructurings and enter an era where debt crises are
unresolvable. This will increase litigation, not reduce it."
The case is NML Capital Ltd et al v. Argentina, 2nd U.S.
Circuit Court of Appeals, No. 12-105.