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NEW YORK, Sept 26 (Reuters) - Creditors suing Argentina over defaulted debt will not object to Citigroup Inc's request to put on hold a U.S. court order preventing it from processing an imminent payment issued under Argentina's local laws, a source said Friday.
At a hearing Friday afternoon, Citigroup is expected to ask U.S. District Judge Thomas Griesa to reconsider or at least stay his July ruling barring the bank from processing the payments, including one for $5 million due Sept. 30.
Citigroup has said it faces regulatory and criminal sanctions by Argentina if it cannot process the interest payment on U.S. dollar-denominated bonds issued under Argentine law following the country's 2002 default.
Bondholders who did not participate in Argentina's past restructurings, including Elliott Management's NML Capital Ltd and Aurelius Capital Management, have opposed reversing Griesa's July order.
But with the Sept. 30 deadline looming, holdout bondholders will not oppose Citigroup's request for more time, a person familiar with the matter said.
A stay would allow Citigroup to make a one-off payment and meet the deadline, and leave it three months before the next payment by Argentina on Dec. 31 for $262 million is due to litigate over the order, the person said.
A motion made public Friday by NML still argued that Citi was not entitled to a stay. But the language in the motion does not prevent the holdouts from offering to support the stay, which they have, the person said.
A spokeswoman for Citigroup declined comment. A U.S. lawyer for Argentina did not respond to a request for comment.
Argentina's most recent default in July came after it refused to honor court orders to pay $1.33 billion plus interest to the holdout bondholders.
The hedge funds, including NML and Aurelius, had spurned the country's 2005 and 2010 debt restructurings, which resulted in exchanges for about 92 percent of the country's defaulted debt for a fraction of their face value.
The country's most recent default came after the U.S. Supreme Court declined to hear Argentina's appeal of a ruling by Griesa that it must pay the holdouts when it paid holders of the exchanged bonds.
Griesa subsequently blocked Bank of New York Mellon Corp from processing a $539 million interest payment, sending Argentina on a course to default after no settlement was reached.
Amid the litigation, Citigroup sought assurances it could process payments it received from Argentina on bonds issued under Argentine law. But Griesa on July 28 blocked Citi from processing payments on U.S. dollar-denominated bonds issued under Argentine law.
The hearing on Friday comes ahead of one scheduled for Monday in which Griesa will consider whether to hold Argentina in contempt and order sanctions of $50,000 per day for not complying with his orders.
The news of the holdouts' plans was first reported by The Wall Street Journal. (Reporting by Nate Raymond in New York; Editing by Leslie Adler)