A global credit committee has been asked to rule on Russia’s bond default, as next stage of debt crisis begins

• A global financial committee has been asked to rule on whether Russia has failed to pay its debts.
• The request to the Credit Derivatives Determinations Committee is a sign that the next stage in the wrangling over Russia’s debts is beginning.
• Russia missed $650 million of bond payments last week, but has argued that sanctions are forcing it into an artificial default.

A global financial committee has been asked to rule on whether Russia has failed to pay its debts, after Moscow missed $650 million of bond payments last week.

An unnamed financial institution on Monday asked the Credit Derivatives Determinations Committee to decide whether a “potential failure to pay” had occurred in relation to Russia’s bonds. Russia still has 22 days left of a 30-day grace period before the committee would be able to rule that a “credit event” — a default — had occurred.

The CDDC includes major investment banks and can rule on whether a borrower has officially failed to pay its debts. A ruling from the committee is a key step in allowing investors in credit-default swaps — contracts that act as insurance against defaults — to receive payouts.

The move is a sign that the next stage of the wrangling over Russia’s debts is beginning, as investors seek to get paid on their CDS contracts.

Russia last week failed to send $650 million to holders of 2022 and 2024 bonds, after the US Treasury barred the government from making dollar debt payments using American banks.

The Russian government instead sent the payment in rubles to the country’s National Settlements Depository.

Credit ratings agencies and financial institutions have said payment in rubles on dollar bonds would amount to non-payment. Yet Russia has argued that it has fulfilled its obligations, and that Western governments are forcing it into an “artificial default.” It has threatened to sue over the situation.

The CDDC will now decide whether to convene a determination committee on the question of Russia’s default. If it ultimately decides that a default has occurred, holders of credit-default swaps on Russian debt will receive a payout.

On Monday, the CDDC deemed that Russian Railways had failed to pay debts due in March, making it the first company in the country to officially default since Vladimir Putin invaded Ukraine in late February.

Mitu Gulati, a law professor and sovereign debt expert, told Insider last week that a Russian government default would likely unleash years of “litigation chaos.”

He said the ongoing war and Western sanctions would greatly complicate the usual process of bondholders and government coming together to reach an agreement.

JPMorgan analysts, led by Jonny Goulden, said in a note Monday that Russia would likely enter default if it fails to send dollars to bondholders.

“There is a grace period of 30 calendar days from April 4 and, after that, if the situation remains as it is, there will likely be an event of default on the bonds,” they said.

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