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Credit Event Could Be First of Many

RUSSIA
  • Late yesterday, the CDDC ruled that a 'Failure to Pay Event' had occurred on certain russian debt, thereby triggering the payouts on upto $3.2bln in swaps contracts. The decision followed a request for clarity on whether credit default swaps on Russian debt should be triggered if Russia pay the principal on sovereign debt, but fail to pay interest on the bonds during any grace period.
  • The request was brought forward by a group of investors who queried bonds that matured on April 4th 2022. It is not likely that yesterday’s decision constitutes a sovereign default, with the decision only triggering specific swaps contracts, and the missed $1.9mln in interest falling below the threshold for cross-default on other instruments.
  • Nonetheless, this is a consequential decision, marking the first meaningful failure of Russia to meet obligations.
  • The next real crunch date for bond payments falls on June 24th, where a $159mln payment is due (that’s bonds maturing at end-May plus a grace period for payment). The viability of these bond payments has been called into question after the US failed to renew a US license known as General Licence 9A, which allowed Russia to settle bond payments in USD.
  • Elsewhere, it appears Russia’s relationship with OPEC is splintering, after reports this morning suggested Saudi Arabia are prepared to increase production should Russian output drop. The FT reported that there have been discussions about an immediate increase in oil supply from both Saudi Arabia and the UAE – which could be announced as soon as today.
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