BUENOS AIRES, July 20 (Reuters) - A holdout creditor suing over Argentina's 2002 default won a favorable U.S. appellate court ruling on Wednesday that effectively blocks a roughly $270 million swap of defaulted Brady bonds from last year.
The decision by the 2nd Circuit Court of Appeals in New York upholds the original attachments granted to Capital Ventures International on assets backing the Brady bonds.
This means the collateral would be subject to seizure by the holdout fund, which is suing to recover the full value of its defaulted Argentine bonds, if the debt exchange were to go ahead.
Wednesday's decision reverses a lower court ruling.
Argentina defaulted on some $100 billion in sovereign debt, including Brady bonds issued in 1992, at the height of a 2001-02 economic crisis.
In 2005 and 2010, the government carried out debt swaps, mopping up 92 percent of the defaulted bonds.
In December, the government offered holders of remaining defaulted Brady bonds another swap deal, which was accepted by creditors owning about $270 million.
But the exchange hinged on U.S. courts allowing the two sides to modify the bonds' collateral pledge agreements in such a way as to sidestep the attachments. A lower court judge allowed this, but the appeals court reversed this decision.
"It is inevitable that attachments will have consequences for third parties," the court said. "Here, the consequences are not dire. The (Brady) bondholders will get no less than they originally bargained for; they lose only their flexibility to arrange a different deal."
Argentine officials did not immediately respond to a request for comment.
"Argentina provides no evidence that failure to do this deal will have a substantial effect on its finances or its ability to access the capital markets," it appeals court said. "We therefore find no circumstance extraordinary enough to justify a discretionary modification of the attachments.
"The exchange may not go forward against the original attachments," the ruling stated.
The Brady bonds involved in the court case come due in 2023. The collateral backing the bonds is returned to Argentina if it pays the principal at maturity or it goes to the bondholders directly if Argentina does not pay.
"If the bondholders have liquidity needs that will not permit them to wait until 2023 for their collateral, they may sell their bonds in the secondary market for distressed debt," the court said.
The case is Capital Ventures International v. Argentina, 2nd U.S. Circuit Court of Appeals, No. 10-4520.
For Capital Ventures: Norman Goldberger of Ballard Spahr and Jennifer Beltrami of Cozen O'Connor.
For Argentina: Carmine Boccuzi of Cleary Gottlib Steen & Hamilton.
(Reporting by Hilary Burke)