By Nate Raymond
NEW YORK (Reuters) - A U.S. appeals court on Friday said it would leave a freeze in place on an order requiring Argentina to pay $1.33 billion in favor of bondholders suing for repayment in the wake of the country's 2002 default.
The 2nd U.S. Circuit Court of Appeals in New York denied a motion to lift a stay it issued in favor of Argentina pending U.S. Supreme Court review of a ruling for the holdout bondholders in August.
The request to lift the stay was made October 15 by bondholders led by hedge funds NML Capital Ltd, a unit of Elliott Management Corp, and Aurelius Capital Management LP.
The case is one of many lawsuits filed by bondholders in the wake of Argentina's $100 billion sovereign default in 2002.
In two restructurings, creditors holding about 93 percent of Argentina's bonds agreed to swap out their bonds in deals that gave them 25 cents to 29 cents on the dollar.
But bondholders who did not participate in the restructurings, including NML and Aurelius, sued for full payment. The litigation was filed in New York under the terms of the bond documents.
In 2012, U.S. District Judge Thomas Griesa ruled Argentina had violated a clause requiring the equal treatment of creditors. The 2nd Circuit largely upheld that order in a decision that the U.S. Supreme Court recently declined to review.
As part of its October 2012 decision, the 2nd Circuit sent the case back to Griesa to clarify how the injunctions he had issued would function.
Griesa issued a new order last November that required Argentina to pay $1.33 billion into a court-controlled escrow account in favor of the holdout bondholders.
The 2nd Circuit upheld that decision, but stayed its impact pending a second appeal by Argentina to the U.S. Supreme Court.
After the 2nd Circuit's ruling, Argentine President Cristina Fernandez pitched a voluntary swap of foreign debt in exchange for bonds governed by local law. But Judge Griesa said last month the proposal would violate an injunction he had issued.
Following Griesa's latest order, NML and Aurelius asked the 2nd Circuit to lift its stay.
A three-judge panel denied that request on Friday. Representatives for NML and Aurelius and a U.S. lawyer for Argentina did not immediately respond to requests for comment.
The case is NML Capital Ltd et al v. Republic of Argentina, 2nd U.S. Circuit Court of Appeals, No. 12-105.
(Reporting by Nate Raymond in New York; Editing by Gerald E. McCormick and Leslie Gevirtz)