US gives nod to Russian default ins payouts

The US Treasury issued a special waiver on Friday to allow investors with insurance against a Russian default, known as Credit Default Swaps, to receive their payouts.

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

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.

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

The license authorizes US persons to purchase or receive Russian bonds starting two days before the announced date of the auction, and up to eight business days after the auction takes place.

The committee that sets the auction date has a scheduled meeting on Monday at 1300 GMT after having met three times this week.

"OFAC has issued two General Licenses (waivers) to help US and other global investors more cleanly exit their exposures to Russia," a Treasury spokesperson said, referring to the Office of Foreign Assets Control which enforces US sanctions.

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.

"This is an example of the fine tuning of a sanctions apparatus that the United States has had significant experience with through the years," said Jamal El-Hindi, a counsel at law firm Clifford Chance.

"Specific licenses, general licenses, are used to make sure that the overall impact of the sanctions is doing what they want it to do, and not blocking things that they don't want it to block," he said.

Russia was 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 as Western sanctions shut off payment channels.