‘Minor’ $1.9 Million Failed Bond Interest Payment Triggers Russian “Failure-To-Pay” Event

In what seems a major action over what many outside observers may see as but a relatively minor technical issue, Russia’s failure to include less than $2 million interest on a late bond payment made at the start of last month has triggered a “failure-to-pay” event, the EMEA Credit Derivatives Determinations Committee has ruled. It has brought the country a significant step closer to a dreaded possible first major external debt default in over a century.

Russia failed to add the precisely $1.9 million in additional interest accrued on credit-default swaps. The ruling came after inquiry from overseas holders of the Russian sovereign bond in question, allowing them to seek payout on the default insurance on as much as $3.2 billion of debt (an amount likely determined later at auction).

But Reuters, which was the first to report the ruling by the panel of investors notes that “At the same time, the size of the accrued interest and the fact that the principal payment has already been paid means the ruling won’t spark a broader default on Russia’s bonds.”

The committee indicated it plans to take up the matter further when it meets Monday, June 6. It could have huge future implications for the some $40 billion of the country’s still outstanding international bonds – nearly $2 billion of which is due through the end of the year.

Russia last month rushed to send dollars through investors after the Credit Derivatives Determinations Committee logged its first “potential failure-to-pay” event when Moscow first tried to transfer rubles on the note.

Meanwhile, the Reuters report reviews: “There are currently $2.54 billion of net notional credit default swaps outstanding in relation to Russia, including $1.68 billion on the country itself and the remainder on the CDX Emerging Markets Index, according to JPMorgan calculations.”

Just prior to the Feb.24 Ukraine invasion Russia possessed nearly $650 billion of available gold and currency reserves, and currently takes in billions of dollars a week selling oil and gas – which Europe is currently seeking to blunt amid its mulled oil embargo – against the backdrop of of its $40BN sovereign debt estimate.