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• Since the start of the Ukrainian conflict, Western banks and other financial intermediaries have been blocking bond payments while they investigate the legal implications of the sanctions, effectively shutting Russian borrowers out of the global financial system.
• Due to payment complications, Russian companies missed deadlines, according to a CDS panel, and a failure-to-pay credit event occurred on Monday.
• After failing to make a bond interest payment, Russian Railways JSC was declared in default by a derivatives panel. According to the Credit Derivatives Determinations Committee, a failure-to-pay credit event occurred when a coupon due on March 14 did not reach investors by the end of a 10-day grace period.
• The first such decision since Russia was slapped with extensive sanctions that complicated financial transactions; • The decision may set a precedent for the Russian government and local companies in a similar situation.
• Last month, state-claimed Russian Railways endeavored to pay the bond coupon, however it couldn’t arrive at holders because of “legitimate and administrative consistence commitments inside the reporter banking organization.”
• The committee’s decision will trigger contracts insuring the company’s debt against default, and holders will now wait to see how much will be paid. The ruling has no immediate impact on bond investors, who have not requested immediate repayment of their holdings.
• Russia’s Finance Ministry has accused the United States and others of attempting to force it into a default on its international debt, which would be the first in more than a century. Last week, the country was forced to pay two dollar bonds in rubles in order to meet its debt obligations, despite the fact that the notes did not allow for it.
• The situation has progressed to the point where a technical default for Russia is now almost unavoidable. According to S&P Global Ratings, the payment in a different currency is equivalent to a default, though the government has until early May to rectify the situation with a conversion into dollars.
• Credit-default swaps, which are relatively illiquid at these levels, showed a 99 percent probability of default on Russia’s external debt within 12 months last week. The CDS now indicates an 88 percent chance. It would be a completely political default, with potentially huge costs for banks and CDS hedging the market.