Russia failed to pay a $1.9 million interest payment on an international bond, bringing the country closer to its first major external debt default in over a century. The late payment could force payouts of billions of dollars to holders of insurance on Russian bonds.
Russia’s International 2022 bond matured on April 4th, but principal and interest payments were not made until May 2nd.
The Credit Derivatives Determinations Committee overseeing Europe voted Wednesday that the missed payment constitutes a “failure to pay event.” Such an event could trigger payouts to holders of Russian default insurance, or credit default swaps.
There are currently $2.54 billion of net notional credit default swaps outstanding regarding Russia, Reuters reported.
A default for the purposes of credit default swaps contracts "occurs once the determination committee votes for a credit event, which has now happened," said Gabriele Foa, portfolio manager of the Global Credit Opportunities Fund at Algebris.
"Of course ... it is a very small amount, so the definition of default is very technical. If, as it seems, it is not possible for foreign investors to receive dollars starting May 25, the default will soon be more material," she added.
Russia has $40 billion of international bonds outstanding and nearly $2 billion in payments due this year.
Russia’s next major coupon payment is due June 24th on a bond issued in 1998.