Bank of New York Mellon Still Has Argentina Payment Money -- Update

By Saabira Chaudhuri and Nicole Hong

Bank of New York Mellon Corp. on Thursday said it is continuing to keep the money deposited by Argentina in June to pay certain bondholders, after a U.S. District Court judge has ruled that BNY Mellon is not allowed to transfer the money to bondholders until Argentina pays its holdout creditors.

The trust bank said in a notice to bondholders that it hasn't received a court order to return the money. U.S. District Court Judge Thomas Griesa is scheduled to hold a hearing at 11 a.m. EDT on Friday, when he may address this issue.

Argentina's talks with its bondholders collapsed late Wednesday, sending the country into its second default in 13 years. Argentina has been embroiled in a yearslong battle with a small group of hedge funds that have demanded full payment for bonds the country defaulted on in 2001. Argentina has refused to pay, despite an order by Judge Griesa requiring it to pay the hedge funds.

The issue came to a head Wednesday as Argentina missed a deadline to make a payment it owed to other bondholders, because the court order had prevented such a move.

On June 26, Argentina deposited $539 million at BNY Mellon for an interest payment on restructured bonds governed by U.S. and U.K. law. Judge Griesa has since said the deposit was an illegal move by Argentina because U.S. courts have ruled that Argentina cannot pay restructured bondholders until it compensates holdout creditors.

BNY Mellon isn't processing the money because it would be a violation of U.S. court order. Argentina's lawyers have asked the judge in recent weeks to suspend his ruling so that BNY Mellon can make the payment, but Judge Griesa has denied these requests.

BNY is caught in the crossfire of the Argentine bond saga because it is one of the trustees for Argentina's restructured bonds, which means it sends payments to holders of Argentine bonds governed by U.S. and U.K. law.

Holders of Argentina's bonds governed by U.K., Argentine and Japanese law bonds have argued their debt falls outside the scope of Judge Griesa's rulings. Citibank is handling the money for the Argentine law bonds. The judge said last week that Citi could make a one-time payment on those bonds, while J.P. Morgan Chase & Co. is handling the Japanese law bonds. The judge has not yet clarified whether his ruling affects those bonds.

At the start of July, the holdout creditors filed an order to compel BNY Mellon to return the money to Argentina. BNY Mellon in turn filed a motion asking that it be allowed to keep the money to prevent exposing the bank to lawsuits from bondholders. The court hasn't yet ruled on that motion, says BNY Mellon.

Write to Saabira Chaudhuri at [e-mail] and Nicole Hong at [e-mail]