Committee delays decision on non-payment of Russian debt

” href=”https://www.law360.com/capitalmarkets/articles/1500883/#”>Ronan Barnard ·

Law360, London (June 9, 2022, 6:11 p.m. BST) – An international derivatives committee said on Thursday it would postpone deciding whether to hold a credit default swap auction after Russia did not reimburse part of the interest. on its sovereign bond debt.

The EMEA’s Credit Derivatives Determination Committee announced that it had decided to meet again on Friday to allow market participants to investigate whether they will be able to participate in the auction without breaching US sanctions.

The move comes after the committee said on Tuesday that it had decided that Russia had did not pay interest on a $2 billion 10-year Eurobond with a 4.5% coupon maturing on April 4. This puts Russia at risk of its first official default since the Soviet era.

This move potentially triggers credit default swaps, negotiable derivatives that work like insurance policies against bond defaults. Investors agree on “credit events” – such as a default – that trigger payments for them when they enter into a credit default swap.

The U.S. Treasury updated its official guidance on Monday, saying provisions in three of the White House executive orders prohibit U.S. investors from buying new debt or equity securities issued by Russian government entities.

The derivatives committee said in its post-meeting statement that market participants needed time to consider the implications the guidelines might have on their participation in an auction.

Dmitry Peskov, press secretary to President Vladimir Putin, denied that the Russian government was at risk of default during a press conference on Wednesday.

“The West is really pushing [Russia] to a defect, but here we have to stipulate all the time – to an artificial defect,” Peskov said in Russian in comments carried by the Interfax newswire. “It’s a man-made defect, because it doesn’t there is absolutely no basis for default by the Russian Federation.”

The Kremlin is working to counter EU sanctions against Russia’s national settlement depository – the country’s largest securities depository – as it chopped off growing Russian economy from Europe due to its invasion of Ukraine. The Kremlin plans to use this depository to make payments on its Eurobonds.

The committee, which covers Europe, the Middle East and Africa, is made up of representatives from banks and investment companies, including Mizuho Securities Co. Ltd., BNP Paribas and Elliott Management Corporation. It is part of the International Swaps and Derivatives Association, a global trade body and standards body for derivatives.

The Kremlin was obliged to do advance bond payments in May after the US Treasury said it would not renew the license Russia relies on for debt payments, forcing Putin’s government into technical default.

Russia responded by saying it would make all foreign debt payments in rubleseven if it was denominated in dollars or euros.

Russia has not waived sovereign immunity in many of its bonds, which would likely leave bondholders unable to continue on payment defaults and collect what is due to them.

The Credit Derivatives Determinations Committees are made up of 10 companies that create derivatives and five voting companies that buy derivatives, as well as observer members who are involved in transactions. Up to three companies can consult at each meeting.

–Additional reporting by Caroline Simson. Editing by Joe Millis.

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