A&O advises industry on settlement of credit derivatives referencing the Russian Federation

The Committee, which comprises many key participants in the CDS market, including nine global banking groups, four asset managers and two central counterparties, is responsible for determining whether a credit event has occurred under a CDS contract and setting the terms of the market-wide auction to settle CDS contracts. A&O advised the industry on the establishment of the Committee in 2009 and has continued to advise the Committee since its inception, acting on a range of high profile sovereign defaults including Greece, Venezuela, Argentina and Ukraine.

At the start of March 2022, outstanding CDS contracts referencing Russia were estimated to have a combined gross notional of USD40 billion. On 4 April 2022, Russia failed to pay principal and interest due under Bonds it had issued. Although Russia successfully cured that default in early May, Russia did not pay any additional interest to cover the period between 4 April 2022 and early May. This further payment default was not cured and CDS contracts across the market were triggered in early June. The Committee successfully held the auction to settle the CDS contracts on Monday 12 September.

David Lucking, Global head of International Capital Markets, commented: “This was a hugely complex process in a rapidly evolving global sanctions landscape, but we were proud to see that the Committee successfully held the auction to settle the CDS contracts, bringing to a close this landmark event in the CDS market. The successful outcome is a testament to the time and effort of the members of the Committee in ensuring the safe and efficient functioning of the market.”

Derivatives partners Paul Allan and David Lucking led the A&O team and were assisted by associate Thomas Rawlinson, with input from colleagues across A&O’s global network.