Argentina skirts 'contempt' ruling by putting aside cash for bond holders

In an effort to circumvent a U.S. court ruling, Argentina has deposited $161 million US in interest payments for its bond holders with the state-controlled Nacion Fideicomisos bank.

The move comes a day after a U.S. judge ruled Argentina is in contempt of court for not reimbursing two hedge funds ahead of its other bond holders.

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Argentina is attempting to pay interest on its bonds to a group of bondholders who have agreed to accept a reduced settlement on its 2001 debt. The placement of the cash in a local bank, instead of the U.S. bank, is an invitation for those bond holders to find a way to access the money.

"By making this deposit, Argentina confirms once again its unshakeable commitment to meet its obligations to bondholders," said Argentina's finance ministry in a statement.

Argentina defaulted on its bonds in 2001, but was able to negotiate a reduced payment with most of its bond holders.

However, two hedge funds NML Capital and Aurelius Capital Management have demanded full repayment of the $1.5 billion they are owed.

They sued to prevent the country from paying back only its restructured bonds and won the support of a U.S. court in July.

After a court order, Bank of New York Mellon refused to send Argentinas interest payments to the group of bond holders who had accepted the lower payment schedule.

Argentina was forced to default on its debt for a second time. It maintained it is unfair for NML Capital and Aurelius to demand preferential treatment and refused to pay them.

U.S. Judge ThomasGriesa has threatened sanctions against Argentina if it does not meet the terms of the court order.