Jorgelina do Rosario and Karin Strohecker

LONDON, (Reuters) – Investors are closer to a possible payout of billions in default insurance for debts issued by Russia and its entities. The country is at the edge of its first major external default since over a century.

On Monday, the EMEA Credit Derivatives Determinations Committee ruled that Russia Railways was in default for a missed bond repayment. This is a crucial step to trigger Credit Default Swaps. (CDS), an instrument used to protect default exposure.

This was the first time that a Russia-originated loan instrument had been classified as in default since Ukraine’s invasion. Creditors closely monitored the decision to determine if the country might take the same course.

A few hours later, the committee was again asked if Russia’s hard currency bonds were liable for non-payment.

CDDC members include many of the biggest international investment banks. On Monday, it announced that they had determined that there has been a “failure in payment” on credit participation notes for Swiss francs linked to Russian Railways.

RZD Capital has issued loan participation notes for 2026 to fund a loan of 250 millions Swiss Francs (or $268 million) to Russian Railways.

IHS Markit reports that there is $21.1 million in net notional CDS for Russian Railways across 17 existing contracts.

Russia’s invasion of Ukraine by the West has prompted Western sanctions to Russia. Moscow countermeasures have also been taken. These measures, along with Western sanctions on Russia, put strains on Russia’s economy. They raise questions about Russian corporate bonds that could be defaulted.

Bank of America, Goldman Sachs International, and JPMorgan Chase International were among the panel members that voted “yes” to the question regarding whether a Russian Railways failure to pay an event. On Friday, the committee met.

This is a case where analysts are unsure if a solvent lender that cannot pay due to sanctions can be considered in default.

“Apparently CDDC says yes… and probably means it will conclude something similar with the Russian sovereign trying to pay a USD coupon – but failing to,” said a source, speaking on condition of anonymity.

UBS AG declined to comment from a spokesperson for the note’s paying agent.

Russian Railways operates passenger and cargo trains on thousands of kilometers of railroad. According to an official notice published by SIX Swiss Exchange, and referenced in the request for the committee, Russian Railways said that it tried to pay interest due March 14, but could not due to compliance requirements within the correspondent bank network.

Investment bank JPMorgan stated Monday that although Russian Railways have relatively few outstanding CDS, they still have $3.43 trillion of net Russia CDS due to be settled.

The question on the Russian sovereign debt is pending consent from the determinations committee and no date for a meeting has been set https://www.cdsdeterminationscommittees.org/cds/the-russian-federation-2, according to its website.

Russia may face its first external sovereign default in more than a century, after making arrangements for a international bond repayment in rubles last week, despite the fact that it was due in U.S. Dollars.

Anton Siluanov, Russia’s Finance Minister, said that the country would take legal action against the West if it tried to forcibly default on sovereign debt.

($1 = 0.9335 Swiss franc)