As talk of a default by Argentina grows, the Latin American government yesterday asked a US judge to pause an order demanding it pay holdout bond owners who did not participate in debt restructuring agreement from 2002 when the country originally defaulted.

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Argentina ordered to pay holdout bond owners

This is the second time Argentina had asked US District Judge Thomas Griesa to stay the previous order to pay the holdout bond owners. The first time the stay was denied. In court Monday little of new significant legal relevance was said to be presented other than Argentina cryptically saying was seeking “global resolution” to the situation.

Argentina had been ordered to pay holdout investors $1.3 billion plus interest, the full value of the bonds. The issue is that such a payment to the holdouts would also impact the previously negotiated settlement with bond holders, who agreed to a much lower payment.  While the holdouts are a relatively small percentage of all bond holders (near 1.6 percent), if Argentina were to meet the holdouts demands they would face lawsuits from bondholders who already agreed to a lower payout demanding to be paid on similar terms.

“As those risks remain, so does the necessity and appropriateness of a stay,” Argentina’s lawyers wrote of the restructuring risk in court documents reported by Reuters.

Argentina argued a deal was required to resolve

In Monday’s court filing, Argentina dredged up the same arguments as in the past, namely that holdouts should not be allowed to put at risk its prior restructurings.  Argentina argued a deal was required to resolve not just claims by the plaintiffs but to consider the demands of other creditors, saying any resolution must also be consistent with a clause in the restructured bonds’ contracts that would open it up to billions of dollars in additional claims if triggered before it expires at the end of this year.

As the end of a 30-day grace period approaches, at which point default can be declared and credit default SWAP insurance issued by major financial institutions is likely to be activated, a search for a solution becomes more urgent. It is unclear which financial institutions issued insurance against an Argentine default, and this could be an unrealized wildcard in the situation.

Today Judge Griesa is likely to hear a range of requests by Argentina, holdout bond investors and financial institutions over how to enforce his ruling requiring payment to the holdouts, Reuters is reporting.

Argentina said it continues to participate in settlement talks before a court-appointed mediator, Daniel Pollack, Reuters is reporting.  “But that process must take into account these legal and factual constraints,” Argentina’s lawyers wrote.