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I n a victory for hedge funds holding debt of the Republic of Argentina, the U.S. Court of Appeals for the Second Circuit refused on Friday to narrow injunctions intended to pressure the South American country to repay the funds. The ruling brings NML Capital Ltd. and other hedge funds closer to collecting about $1.3 billion.

The dispute stems from the Argentine government's 2001 default on roughly $90 billion in sovereign debt. Argentina has repaid investors that were willing to take about 30 cents on the dollar, known as "exchange bondholders." But the government has refused to pay a cent to investors like NML and EM Ltd. (sometimes called "vulture funds"), which acquired Argentine bonds on the cheap and are demanding to be repaid in full.

To pressure Argentina to pay, U.S. District Judge Thomas Griesa in Manhattan crafted a series of injunctions in 2011 that would block Argentina from prioritizing exchange bondholders over distressed debt investors like NML. The injunctions apply to a batch of pending lawsuits over $1.3 billion in bonds. The Second Circuit affirmed Griesa's injunctions last October, ruling that Argentina's repayment scheme violated a contractual promise to treat all bondholders equally. On remand, Griesa in November clarified that third-party financial institutions would likely be violating the injunction if they assisted Argentina in making continued payments to exchange bondholders. He also ruled that when Argentina pays the exchange bondholders, it must make a "ratable" payment to the hedge funds that includes principal and accrued interest.

In its ruling Friday, the Second Circuit affirmed that Griesa's injunctions also apply to third-party banks. It also rejected Argentina's argument that the "ratable" repayment formula is inequitable because it allows the plaintiffs to recover full principal and interest, whereas the exchange bondholders are currently receiving payments on just their accrued interest. Griesa did "no more than hold Argentina to its contractual obligation of equal treatment," the court wrote.

The Second Circuit, however, stayed enforcement of the injunctions until the Supreme Court decides whether to review the case. Argentina's lawyers filed a certiorari petition in June, arguing that the injunctions violate the Foreign Sovereign Immunities Act by restricting Argentina's use of its property.

The hedge fund plaintiffs are represented by Debevoise & Plimpton and Gibson Dunn & Crutcher, among other firms. A Cleary Gottlieb Steen & Hamilton team including Jonathan Blackman and Carmine Boccuzzi Jr. represents Argentina. David Boies of Boies, Schiller & Flexner and the boutique O'Shea Partners represents a coalition of exchange bondholders including the hedge fund Gramercy Funds Management.

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