The EMEA Credit Derivatives Determinations Committee said it had resolved in a 12 to one vote on June 1 that Russia had not paid on the principal or interest on a $2 billion 10-year Eurobond with a 4.5% coupon maturing on April 4.
The ruling could trigger credit default swaps, tradable derivatives that function as insurance policies against the default by bond issuers. Investors agree on what "credit events" trigger payouts for them when they enter into a credit default swap.
The Kremlin had then sent a $564 million payment using its ruble reserves on the principal and interest accrued before the due date. But the payment did not cover the $1.9 million of interest accrued after the due date, putting Russia closer to a default.
"The debt committee resolved by supermajority that a Failure to Pay Credit Event has occurred with respect to the Russian Federation," the committee said.
This debt was still outstanding after the 30-day grace period elapsed, causing bondholders to send a default notice to the international clearing house and depository Euroclear PLC.
The debt committee ruled on Tuesday that a "Failure to Pay Credit Event" had occurred on May 19, and will meet on Wednesday to decide how credit default swaps will pay out.
Members of the committee include representatives of banks and investment managers, including Goldman Sachs International, Credit Suisse and Pacific Investment Management Co. LLC.
The committee, which covers Europe, the Middle East and Africa, is formed under the auspices of the International Swaps and Derivatives Association, a global standards-setter. The panel had previously found a "Potential Failure to Pay" event had occurred after it paid in rubles on bonds denominated in dollars, possibly causing a default if Russia did not pay after a 30-day grace period.
The Kremlin was forced to make bond payments in May before it was necessary after the U.S.Treasury signaled it would let the license Russia relies on for debt payments expire, forcing Putin's government into a technical default.
The failure to pay may leave bondholders without any option for recourse as Russia did not waive its sovereign immunity in the bond, making it difficult for creditors to sue over defaults and collect what they are owed.
The debt committee had previously ruled that Russia's state-owned railway operator RZD OAO was the first Russian company to default on bond debt since Russian troops invaded Ukraine, after it failed to make the payment through an Irish subsidiary due to Western sanctions.
Credit Derivatives Determinations Committees are made up of 10 companies that create derivatives and five voting companies that purchase derivatives, alongside observer members that are involved in these transactions. Up to three firms can consult at the meeting.
--Additional reporting by Caroline Simson. Editing by Joe Millis.
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