U.S. Treasury gives green light to Russian default insurance payouts

The United States Department of the Treasury is seen in Washington, D.C., U.S., August 30, 2020. REUTERS/Andrew Kelly/File Photo

WASHINGTON/LONDON, July 22 (Reuters) – The U.S. Treasury issued a special waiver on Friday to allow investors with Russian default protection policies, known as Credit Default Swaps, to receive their payouts.

The normally straightforward process of CDS payouts was thrown in chaos in June when Washington said its sanctions on Russia represented a total ban on buying Moscow’s debt. read more

An investor who buys a CDS contract usually hands over the underlying bond to the bank or fund that sold them the CDS when a default happens. It traditionally involves an auction to determine the price, but under the sanctions that exchange effectively became illegal.

“OFAC has issued two General Licenses (waivers) to help U.S. and other global investors more cleanly exit their exposures to Russia,” a Treasury spokesperson said.

The move also authorizes financial institutions “to facilitate, clear, and settle” the newly-authorised transactions, the Treasury’s website added

Analysts had estimated that roughly $2.5 billion worth of Russia sovereign debt CDS had been held up by the problems.

Russia was formerly declared in default last month, although it had already tripped in May by failing to pay an additional $1.9 million of interest that had built up on an earlier overdue payment.

The confusion had seen investors lobby Washington to make Friday’s allowance.

It came alongside another ‘license’ that authorises, through to October 19, wind-down transactions involving securities issued by Russia-based entities under agreements that were entered into before June 6.

“The Treasury granting the license was sensible and helps to fulfill the purposes of a CDS and the reason that the CDS investment exists,” said Jay Auslander, a partner at law firm Wilk Auslander.

“From a financial point of view it is good news and what we would have hoped to see.”

Reporting by Caitlin Webber in Washington, Marc Jones in London and Rodrigo Campos in New York; Editing by Tim Ahmann

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