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DEFAULT WATCH – What Next for Russian bonds?

RUSSIA
  • With today marking the end of the 30-day grace period and a number of Russian bondholders reporting failure to receive interest payments, a formal Russian default now seems inevitable.
  • What comes next for Russian debt? With the grace period now expired, one of the next steps is the formal declaration of default from 25% or more bondholders – which could trigger default status for not just the bonds on which Russia have failed to pay interest, but all other foreign bonds.
  • This last step is somewhat clouded however, after the Russian economy ministry looked to cancel the cross-default provision on bonds some weeks ago – a measure that was formally approved by government. It’s unlikely that this legislation would be recognised by international courts, but will add to the dispute between Russian and international authorities on the drivers of Russia’s failure to pay.
  • Moody’s, S&P and Fitch all formally withdrew their ratings of Russian debt shortly after the installation of sanctions back in March – so it’s unlikely we’ll get a recognition of default outside of international courts – meaning the declaration could be a lengthy and disputed process – and may not be acknowledged at all inside of Russian borders.
  • As such, creditors for now may not seek to enforce payment via courts – made even more complicated by the suspension of General Licence 9A by US regulators, cutting off payment rails that Russia’s NSD could use to reach creditors.
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