A U.S. federal judge said here Tuesday that Argentina and creditors who boycotted Buenos Aires’ debt restructurings must negotiate “continuously until a settlement is reached” to avoid another default.
“That is about the worst thing I can envision,” U.S. District Judge Thomas Griesa said.
Argentina defaulted on roughly $100 billion in debt in December 2001 - the largest sovereign default in world history - amid a financial meltdown and economic depression.
The vast majority of Argentina’s creditors accepted steep haircuts in 2005 and 2010 debt restructurings.
But a group of hedge funds that refused to accept the debt swaps sued Argentina in the U.S. courts for full payment on their bonds.
In November 2012, Griesa ordered Buenos Aires to repay more than $1.3 billion in defaulted debt to the litigating hedge funds, led by Elliott Management Corp.‘s NML Capital Ltd unit and Aurelius Capital Management.
Argentina’s appeal of Griesa’s decision reached the Supreme Court last month, but the justices not only declined to hear the challenge, they issued a separate ruling that enables holdout bondholders to ask U.S. courts to compel Argentina to reveal the locations of assets.
Griesa has blocked Argentina’s attempt to make scheduled payments to creditors who accepted the reschedulings and Buenos Aires faces the prospect of default on July 30 if it cannot resolve the dispute with the hedge funds before then.
Representatives of the Argentine government and the hedge funds have met with Daniel Pollack, the attorney Griesa appointed last month to mediate between the parties, but the sides remain far apart.
Griesa on Tuesday rejected an Argentine motion to stay his earlier rulings, insisting that Buenos Aires has other options to avoid a second default.
Pollack announced plans to meet with Argentina and the creditors at 10:00 a.m. Wednesday.
Full payment to the hedge funds would lead other holdout bondholders that were not part of the U.S. litigation to demand full repayment, according to Argentine President Cristina Fernandez’s administration.
Buenos Aires says those potential claims represent a liability of some $15 billion, equivalent to half of Argentina’s foreign-exchange reserves.