Isda’s Credit Determinations Committee will convene at midday in London on Tuesday to discuss whether a credit event has already occurred with respect to debt issued by the Republic of Ukraine. Holders of now-expired credit default swap contracts are seeking to have their contracts included in any payout following an anticipated failure-to-pay event.
The committee will debate whether a repudiation/moratorium event has taken place as a result of the country’s agreement with creditors to restructure US$18bn of sovereign debt, which was subsequently approved by its parliament last week.
Any ruling in favour of such a credit event would not itself trigger an auction of the US$396m in net notional of CDS outstanding on the sovereign. Instead, it would see contracts that expired between parliamentary approval of the agreement and any subsequent default credit event ruling extended to the next bond payment date, enabling holders to participate in the resulting auction that determines the final payout on the instruments.
For holders of protection that expired on September 20, that decision will be crucial. Currently, they stand to miss out on payments as the default cannot officially be called until the 10-day grace period following a eurobond payment due on Wednesday.
Repudiation/moratorium events are some of the most difficult to determine under CDS rules, market participants have noted.
Holders of CDS referencing Argentina were unsuccessful in their attempt to call a repudiation/moratorium event in 2014. In that case the DC ruled that comments from the finance minister surrounding the country’s intention not to pay its debts did not satisfy the requirements. The question was resubmitted once a failure-to-pay event was determined, though the committee’s final decision was unchanged.
