Argentina Found in Contempt of Court

MANATTAN (CN) - Argentina was held in contempt Monday for failing to repay bondholders, but was spared additional fines by a federal judge.

U.S. District Judge Thomas Griesa declined to impose financial sanctions against Argentina, declaring that he would determine sanctions at a later date.

Griesa had ordered the country to pay $1.3 billion to holdout hedge funds NML Capital and Aurelius, which refused to accept a restructuring of their plans in 2005 and again in 2010.

Plaintiffs had asked Griesa to impose a daily fine of $50,000.

At issue is the Argentine Congress' decision this month to pass a debt-swap law in an attempt to avoid Griesa's ruling to repay a group of holdouts who refused the country's restructuring of bonds purchased in 1994 for pennies on the dollar.

"We all know holding a party in contempt of court is a rare thing," Griesa said told a packed courtroom Monday, noting that he had no other choice but to hold Argentina in contempt because of the "illegal conduct of the Republic to unlawfully change" the terms of its agreement with bondholders.

Aside from its attempted restructuring of the bonds, Argentina has also tried to remove the Bank of New York Mellon as trustee and replace it with an Argentine bank, thus putting it under the purview of that country, and side-stepping his orders.

The country's actions are "illegal and cannot be carried out," Griesa said Monday.

Interest payments are due to the non-restructured bondholders Tuesday.

On Friday, Griesa stayed his previous order barring Citigroup from making a $5 million interest payment to bondholders to satisfy Argentina's defaulted debts, and allowed attorneys representing holdout creditors more time to argue that bonds governed by Argentine law fall under his order for repayment.

In June, Griesa ordered Argentina to pay $1.3 billion to holdout hedge funds NML Capital and Aurelius, which bought the bonds in 1994 and then refused to accept a restructuring plan in 2005 and 2010.

Griesa previously ruled that the bank must pay holdouts when it pays other bondholders. He even once blocked Bank of New York Mellon from processing a $539 million interest payment.

He stayed that motion at the end of last week, allowing the bank to make its $5 million payment, and giving the country three months to make an additional payment of $262 million on New Year's Eve.

While Argentina restructured its plans and satisfied most of its debts, NML and Aurelius held out to enforce the original deal.

Griesa ruled in July that no other bondholders would be paid until billionaire Paul Stinger, who owns the hedge funds, gets paid $1.3 billion, or some other amount the parties could agree upon.

The 2nd Circuit has twice rejected appeals of the judge's orders, and the U.S. Supreme Court declined to hear Argentina's appeal that it pay holdouts and holders of exchanged bonds at the same time.

Argentina has publicly balked at Griesa's actions against its sovereignty. On Aug. 6, its financial ministry sent Citibank a letter demanding another payment by the end of this month.

Argentina has suggested that the bank faces "grave risk for civil, regulatory and criminal liability" if it follows Griesa's rulings instead of its own laws.

But Griesa refused to intervene in the bond fight.

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