(Adds quote from hedge fund lawyer, background on debt dispute)
By Joseph Ax
NEW YORK, June 5 (Reuters) - Argentina must pay $5.4 billion to more than 500 “me-too” holders of defaulted debt before it can pay the majority of its creditors, a U.S. judge ruled on Friday, adding to the mounting pressure facing the South American country.
The decision from U.S. District Judge Thomas Griesa in New York is the latest development in long-running litigation by creditors seeking full repayment on Argentina’s bonds following its $100 billion default in 2002.
Griesa previously ordered the country not to pay other creditors until it pays $1.33 billion plus interest to a group of holdout hedge funds who refused to exchange their debt.
Argentina again fell into default in July 2014 after refusing to honor those orders, and officials have criticized Griesa as biased.
In Friday’s ruling, Griesa said the “me-too” creditors held bonds similar to those held by the hedge funds and thus should be treated the same way. The bonds, he said, contain a clause that requires payment at the same time as creditors who agreed to exchange their debt in 2005 and 2010 restructurings.
Griesa said Argentina has violated that clause by refusing to pay the holdouts while attempting to pay the exchange bondholders, who hold about 92 percent of the defaulted debt worth around $28 billion in outstanding principal.
“By making payments on this superior class of debt, the Republic has violated its promise to rank plaintiffs’ bonds equally with its later-issued external indebtedness,” Griesa wrote.
A spokeswoman for Argentina’s government was not immediately available. Representatives of the lead hedge funds, Elliott Management’s affiliate NML Capital Ltd and Aurelius Capital Management, did not immediately respond to requests for comment.
Earlier on Friday, Matthew McGill, a lawyer for NML, said he expected a ruling promptly.
“And that would kick off part 2 ... should all the other plaintiffs get the same injunction as us,” he told reporters in London.
Griesa’s ruling applied both to creditors who already hold money judgments in New York against Argentina and those who do not.
The decision came only a week after both sides argued the issue before Griesa. Argentina’s lawyers warned that the amount of money in claims could increase if he ruled in favor of the holdouts, noting the $10 billion in judgments against the country in New York federal court alone.
Argentina President Cristina Fernandez has called the holdouts’ request for 100 cents on the dollar extortion, and the hedge funds are widely denigrated as “vultures” in Argentina.
Griesa has urged the parties to pursue a settlement and last year appointed a mediator, Daniel Pollack. Argentina, however, has questioned Pollack’s impartiality and said it will not negotiate.
Investors have lost hope of a deal before the Oct. 25 elections, when a successor will be elected to replace Fernandez. She is barred from running for a third term. (Reporting by Joseph Ax in New York; Additional reporting by Hugh Bronstein in Buenos Aires, Daniel Bases in New York and Marc Jones in London; Editing by Bernard Orr)