What Will Happen if Russia Defaults on Its Debt?

To some analysts, that decision and the payments in rubles mean that Russia already is technically in default.

“If Russia doesn’t pay on time, doesn’t pay in the currency in the contract, that’s a default — it’s crystal clear,” said Timothy Ash, a senior sovereign strategist at BlueBay Asset Management. “For all intents and purposes, Russia is already in default.”

Defaults have been tied up in courts before. Argentina notably defaulted in 2014 after negotiations with hedge funds that refused to accept reduced payments broke down and a federal judge in the United States ruled that it could not make its regular payments on bonds without also paying the hedge fund holdouts. The U.S. Supreme Court declined to hear Argentina’s appeal in the case.

Russia’s case is unique because of the sanctions, and it is expected to argue that its ability to make payments in the currencies in its bond contracts has been constrained because it cannot access all of its reserves.

Mr. Ash suggested that it would be difficult for Russia to find a court that is sympathetic with Russia’s position.

“A U.S. court is never going to rule against O.F.A.C.,” Mr. Ash said, referring to U.S. Treasury Department’s Office of Foreign Assets Control, which administers the sanctions.

But Mr. Samples suggested that, given Russia’s global pariah status, creditors could struggle to pursue Russian assets even if they win a favorable judgment in court.

Article source: https://www.nytimes.com/2022/04/16/business/russia-debt-default.html