Major US Banks Rule Ukrainian Default is Inevitable

The International Swaps and Derivatives Association (ISDA) announced that its Determination Committee has ruled that a moratorium was instituted on Ukraine’s debt, triggering payouts on default insurance.

The panel comprises 15 major banks and financial companies, including Bank of America, Citibank, Goldman Sachs, and JP Morgan.

The decision was made unanimously at a committee meeting on September 23.

"EMEA Credit Derivatives Determinations Committee resolved that a Potential Repudiation/Moratorium had occurred with respect to the Republic of Ukraine," according to the press-release.

The decision is the first step toward a so-called credit event that would allow the settlement of nearly $396 million of derivatives contracts, ISDA reported.

The ruling means holders of credit default swaps (CDS) now have a wait-and-see period to see if Ukraine will pay out its debts. On Wednesday, Ukraine froze redemption of a $500 million bond maturing September 23. The expected credit event will occur after the 10-day grace period and trigger the payout of the CDS.

The payout of CDS is an event of repudiation/moratorium having two parts, according to ISDA’s rules. The first is an evaluation of the potential for default, and the second includes a failure to pay.