Russia Bondholders Have No Hope With Default, Top Lawyer Says

(Bloomberg) -- Russian government bondholders would be left with no viable path to recover their money if the country defaults, according to one of the top global lawyers in sovereign debt litigation.

Jay Auslander, who worked with Argentina holdout creditors in 2016, believes there would be little scope for litigating Russia in court in case of a default at least until the end of the conflict in Ukraine. 

“Bondholders getting paid depends entirely on this conflict getting resolved and Russia coming back to the world stage,” he said in an interview with Bloomberg News. 

Russia has so far honored all of its obligations and signaled its intention to redeem $2 billion bonds maturing on April 4, while offering a buyback in rubles to facilitate the payment to domestic bondholders. Yet, the risk of a default continues to loom as Western sanctions severed the country from the rest of the financial community, denting Moscow’s ability to pay creditors on time.  

The New York-based attorney, who helped a group of bondholders seize Argentine army-owned helicopter engines in the U.S. five years ago, said in this case it may be harder for bondholders to recover their money unless Moscow decides it’s in its interest to reach an agreement with investors. 

“When you look at Argentina, no matter what happened in the courts, no matter what injunctions were entered, nothing changed until Cristina Fernandez De Kirchner was voted out and Mauricio Macri came in,” said the lawyer, a partner at New York-based firm Wilk Auslander. 

Read: Will Russian Bonds Default? Investors Keep Watch: QuickTake

Foreign investors can sue Russia and ask an immediate repayment of bonds --a so-called acceleration-- and U.S. courts are likely to side with bondholders, but recovering the money may be complex, he said. If Russia chooses to default in the future or sanctions prevent debt repayment, bondholders are likely to face an uphill battle in the courts to lay claim or seize assets tied to Russia as they might be protected by sovereign immunity. 

“This war needs to be over in a way that is acceptable to the world markets for Russia to be able to function with any degree of normalcy again,” Auslander said. “Until that happens, I can’t see how anybody gets paid in the event of a default.”

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