UNEXIM: The outlook for creditors

A shiver went through the international markets in February. The disaster in Russia entered a new phase as Unexim, the country's fourth-largest bank by assets, defaulted on its Eurobonds - bonds that are usually held sacrosanct.

On Monday February 8, Unexim announced that it was defaulting on a $12.4 million coupon payment, which automatically triggered a default on the $250 million principal. It also missed a coupon payment on $50 million of floating-rate notes (FRNs), which also means a default on the principal. Unexim, which has traditionally had perhaps the best political connections of all the Russian banks, is now in default on some $2 billion of foreign debt.

Of all its debts, those causing Unexim - and Russian banks in general - the biggest headache are the dollar forward contracts. Unexim owes counterparties about $1.2 billion in forwards, but is locked in a wrangle over the exchange rate that...