US District Judge Thomas Griesa on Thursday said Argentina’s proposed debt restructuring plan was “illegal,” but stopped short of holding the country in contempt, saying that would not help resolve the dispute that has led to the nation’s second default in 12 years.
Griesa said proposed legislation announced on Tuesday by Argentine President Cristina Fernandez would violate orders he imposed favoring creditors who refused to accept restructured bonds following the country’s 2002 default on US$100 billion in debt.
“It is illegal, and the court directs that it cannot be carried out,” Griesa said at a hearing in New York.
However, the judge declined to hold Argentina in contempt despite the urging of the two leading holdout creditors, saying such a finding would not “add anything to the scales” to encourage a settlement.
Argentina missed a June interest payment after Griesa blocked payments owed to holders of debt issued under a US law that was restructured in 2005 and 2010.
Fernandez, steadfast in her refusal to pay the hedge funds face value on their bonds, this week sent to the Argentine Congress a bill that would allow the government to resume payment to holders of exchanged bonds in defiance of Griesa’s ruling.
The proposal prompted lawyers for Elliott Management Corp’s NML Capital Ltd and Aurelius Capital Management, the leading bondholders suing for payment after not participating in the country’s restructurings, to seek a contempt finding.
“I firmly believe there will not be a settlement until it becomes crystal clear to the Republic of Argentina that its efforts to evade will not be countenanced,” a lawyer for Aurelius, said Edward Friedman.
However, a US lawyer for Argentina, Carmine Boccuzzi said his firm Cleary Gottlieb Steen & Hamilton had only learned about the proposal on Tuesday night. He said a contempt order would not help forge a deal, adding the proposal was not even a law yet.
“A finding of contempt would be only further gasoline on the fire,” he said.
Typically, US courts can impose prison or fines as part of a contempt order. With prison not an option, Argentina could face stiff fines for failing to comply with Griesa’s orders, legal experts said.
They said even if Griesa were eventually to issue a contempt order, it would be unlikely to have much practical impact on a country that has already shown itself willing to defy his rulings.
During the 2005 and 2010 restructurings, holders of about 93 percent of Argentina’s debt agreed to swap their bonds in deals giving them US$0.25 to US$0.29 on US$1. Bondholders who did not participate including NML and Aurelius then turned to the courts seeking payment in full.
In 2012, Griesa ordered Argentina to pay the holdouts US$1.33 billion plus interest the next time it made a payment to holders of the exchanged bonds.
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