CDS holders seek Ukraine credit event ruling

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Helen Bartholomew

Holders of credit default swaps referencing the Republic of Ukraine have filed a question with Isda’s credit determinations committee in an attempt to have expiring contracts extended so that they benefit from a payout once a default has been ruled.

The submission to Isda’s European DC requests a ruling on whether a repudiation/moratorium credit event has occurred with respect to the restructuring agreement on US$18bn of debt that was approved by Ukraine’s parliament on Thursday.

Although a ruling would not itself trigger an auction of US$396m in net notional of CDS outstanding, the repudiation/moratorium event exists to protect CDS holders in the event that an issuer confirms its intention to default on its debt and would trigger an extension of next-to-expire contracts to the next payment date of outstanding bonds.

Crucially, it would provide a lifeline to holders of credit protection due to expire on September 20.

Those investors look set to miss out on payouts as any default stemming from the debt restructuring agreement is unlikely to be called until early October, after the 10-day grace period following a missed Eurobond payment on September 23.

Voting members on the Isda DC have two working days to confirm whether the committee will convene to consider the question.

Such rulings are rare, however. During Argentina’s default last year, holders of June expiring CDS contracts were unsuccessful in their bid to have those contracts rolled into the July 30 default. The CDS holders argued that statements made by government officials in early June about the country’s decision not to service its debts constituted a repudiation/moratorium event.

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