Russia Potentially Failed To Pay On Bonds, Says Debt Body

Law360, London (April 20, 2022, 6:22 PM BST) -- An international debt committee ruled on Wednesday that Russia potentially failed to make payments on its government bonds amid fears Moscow will default for the first time in over a century.

The EMEA Credit Derivatives Determinations Committee met to discuss whether the Russian Federation potentially failed to pay on eurobond payments on April 4 when it made a $649.2 million payment in rubles after an attempt to pay in dollars was blocked by a corresponding bank because of U.S. sanctions. 

The potential failure to pay ruling is relevant to any extension of a grace period for Russia to make the payments. A 30-day grace period usually occurs after a failure to pay warrant declaring a credit event has been issued.

The group of international investment banks' judgments can trigger derivatives contracts that insure a borrower's debt against defaults by the borrower, which provides financial protection to bondholders.

Russia's ministry of finance said on April 6 the sovereign debt servicing payments were made in rubles after U.S. sanctions imposed after the country invaded Ukraine prevented Vladimir Putin's regime from paying in dollars using accounts at American financial institutions.

The ministry said it had tried to make the debt-servicing payment on the bonds through an account at an American correspondent bank, but that lender refused to process the transaction due to U.S. sanctions.

The ministry then ordered its National Settlement Depository to make the payments in rubles through a Russian bank, and said it considers all debts to have been paid in full.

Members of the derivatives determination committee include representatives from Mizuho Group, Credit Suisse and BNP Paribas.

The committee, which covers Europe, the Middle East and Asia, is part of the global standards setter for derivatives — the International Swaps and Derivatives Association — and first met on April 13 to begin discussions on Russia's potential failure to pay, but adjourned without reaching a decision. 

The EMEA determination committee found at the same meeting that no auction would be held to settle transactions related to Russia's state-owned railway company RZD, after ruling that it had failed to make bond payments due March 28. The European Union and the U.K. government imposed sanctions on RZD in February.

Credit Derivatives Determinations Committees are made up of 10 companies that create derivatives and five voting companies that purchase derivatives, alongside observer members that are involved in these transactions. Up to three firms can consult at the meeting.

--Additional reporting by Al Barbarino. Editing by Joe Millis.

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