U.S Judge Bans Argentina Asset Sale
Fri February 6, 2004 09:39 AM ET

By Simon Gardner

BUENOS AIRES, Argentina (Reuters) - A judge in Maryland has placed restrictions on the sale of some Argentine military property in the United States in the first such ruling in favor of creditors seeking to regain lost investments, an Argentine Defense Ministry source said Friday.

Some of Argentina's bondholders, furious at being offered 25 cents on the dollar on $88 billion in debt securities that Argentina defaulted on in January 2002, are trying to seize assets to recoup their losses.

The judge placed restrictions on two Navy storage buildings and two Air Force storage buildings in Maryland, said the source, who spoke with Reuters on condition of anonymity. The source could not identify the judge or the court, but said the decision was made on Thursday.

"The government cannot sell them or rent them out. It is like saying Argentina cannot sell them until the courts issue their ruling," the source added, referring to the storage buildings.

+The source said the government would appeal the ruling. Neither the Foreign Ministry nor the Economy Ministry had immediate comment.

The storage buildings contained a host of materials, possibly including arms, the source added.

"There are some aircraft being repaired, motors. I don't know if they are warplanes. There could be some weapons," he said.

The Maryland-based judge's ruling comes as Argentina is aiming to persuade the International Monetary Fund to keep loans flowing under a $13.3 billion aid deal. Economy Minister Roberto Lavagna will meet IMF Managing Director Horst Koehler in Miami on Monday to discuss a second review of targets under the loan package.

An earlier ruling by U.S. District Judge Thomas Griesa in New York saying that government property should be protected while Argentina's Finance Ministry tries to restructure its defaulted debt expired on Jan. 31. That has paved the way for creditors to start trying to seize assets.

Under Griesa's ruling, bondholders are free to try to grab assets that are used for commercial purposes. This excludes embassies, naval vessels or government-owned airplanes.


Argentine Military Assets in U.S. Frozen in Lawsuit (Update6)

Feb. 6 (Bloomberg) -- Argentina said it was barred by a Maryland state judge from selling or transferring the contents of four military warehouses, the first court order won by a holder of the nation's defaulted debt that could lead to seizure of Argentine assets abroad.

The freeze applies to the $3 million in assets including buildings and at least one airplane, as well as motors and weapons, Defense Ministry spokesman Fabian Dabul said in an interview. The order was obtained by NML Capital Ltd., a Cayman Islands-based fund that is suing Argentina for $172 million. Kevin Reed, a lawyer for NML Capital, said contrary to the government's claims, the order covers only real estate.

``It's about time,'' said Horacio Vazquez, head of the Argentine Bondholders Association, which represents 7,000 bondholders. ``The government has taken two years and has done nothing, so the courts have had to step in.''

The ruling is a setback for Argentina's efforts to restructure its $99.4 billion defaulted bonds, a condition for the country to receive disbursements from the International Monetary Fund under a $13.3 billion aid agreement signed in September. Bondholders have rejected Argentina's offer to pay $250 for each $1,000 in face value on defaulted bonds.

``This is no surprise at all -- the sort of strategy Argentina is pursuing was bound to result in this,'' said James Barrineau, a senior vice president for emerging markets at Alliance Capital Management Co. in New York, which manages $145 billion in fixed income securities. He wouldn't say if he holds Argentine bonds.

`Avalanche' of Rulings

The country's most-traded defaulted bond, the 7 percent bond due 2008, was unchanged at 25 cents on the dollar at 4:15 p.m. in New York, according to J.P. Morgan Chase & CO. It traded as high as 30 cents as recently as Jan. 9.

Most Argentine assets are protected under international treaties and cannot be seized, said Patricia Lopez Aufranc, a lawyer at Argentine firm Marval & O'Farrel.

Still, Argentine holders of bonds sold after the default asked this week to receive interest payments in Argentina, bypassing Euroclear system in Europe to ensure creditors can't seize the money.

Economy Minister Roberto Lavagna said he is unconcerned about the freeze on the property and said creditors cannot collect by going to court. ``This has no relevance whatsoever,'' he said.

NML Capital sued Argentina in federal court in New York, seeking $172 million. U.S. District judge Thomas Griesa is also considering a suit by EM Ltd., a fund controlled by Kenneth Dart, which has claims worth $270 million against Argentina. Griesa late last year ruled in favor of four funds with claims against Argentina, paving the way for them to try to seize assets.


Lavanga said in a news conference in Buenos Aires this morning that the Maryland action had been filed by EM Ltd. Parvin Moyne, a lawyer at Debevoise & Plimpton in New York representing Dart, said she was ``aware of what Lavagna said and it's not true. We have no action pending in Maryland,'' she said ``Dart and EM has no relationship whatsoever to NML Capital or the frozen assets.''

Dozens of the investors, including Dart, president of Dart Container Corp. in Mason, Michigan, have initiated legal proceedings in a bid to win a bigger settlement.

Argentina has stated publicly that it is ''engaged in financial engineering designed to prevent U.S. bondholders from collecting on judgments they may obtain here,'' said Reed, a commercial litigation partner at Quinn Emanuel Oliver & Hedges in New York.

``There will be an avalanche of these sort of rulings,'' said Jonathan Binder, former senior investment manager for Standard Asset Management, in Miami, who last week set up his own investment advisory company. Binder managed $1.2 billion in assets, including Argentine bonds, for Standard Asset.

``Life is going to be much more difficult for the government as a result of this,'' he said.

To contact the editor of this story: Laura Zelenko at lzelenko@bloomberg.net Last Updated: February 6, 2004 17:05 EST