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NEW YORK, March 24 (IFR) - Citigroup may have narrowly avoided losing its operating license in Argentina, but bondholders are still between a rock and a hard place after the latest court ruling on Argentina's debt.
The US bank won a victory of sorts last week in New York, where a US judge is overseeing the decade-long legal battle between the sovereign and a group of holdout creditors.
The judge gave Citi the green light to facilitate two debt payments even as the US bank works to pull out of its role as local custodian of the Argentine-law bonds in question.
Judge Thomas Griesa had previously blocked any such payments unless Argentina also paid holdout creditors who refused to accept previous debt restructurings on the bonds they own.
Citi's choice had been: make the payments and fall afoul of US justice, or block the payments and risk losing the right to operate in Argentina.
While Griesa's ruling gets the bank off the hook for now, other entities - not to mention the investors themselves - remain stuck in a story that never seems even close to ending.
"Unlike prior similar orders, this order expressly excludes other institutions in the chain of payment," said one lawyer briefed on the matter.
"It seems that its purpose is more to get Citibank out of the middle than to facilitate payment to bondholders."
Intermediaries such as Euroclear and Clearstream, which would process any payments to international debt-holders, are still in theory bound by Griesa's initial ruling.
So even if Citi were to process the payments - coupons come due on March 31 and June 30 - the intermediaries would run the risk of violating a US court order.
If the local holders of the bonds are paid and the international creditors are not, then the local-law bonds could also go into default.
"Local holders will probably get paid," a lawyer familiar with the situation told IFR.
"As for the off-shore holders, the question becomes what will Euroclear and Clearstream do? This could really put pressure on them."
Euroclear and Citigroup declined to comment, while an attorney for Clearstream did not reply to requests for comment.
Argentina descended into its second default in a little over a decade last year, when Griesa blocked coupon payments on nearly US$30bn of restructured bonds.
Holdouts led by Elliott Management's NML Capital unit have won a series of legal rulings against Argentina and claim they are owed US$1.33bn plus interest from the 2001 default.
While yet another default would likely have little impact in the secondary markets, it would make it still more difficult to work out the true values of the bonds that have already been defaulted on.
"The Argentine-law exchange bonds are important," said Siobhan Morden, head of Latin America strategy at Jefferies.
"They are performing bonds and offer a better barometer of risk than New York and English law bonds, which trade with accrued and past due interest," she said.
"If these local-law bonds also enter default it will become more complicated to analyze valuations in Argentina." (Reporting by Davide Scigliuzzo; Editing by Paul Kilby and Marc Carnegie)