Wartime sovereign debt moratorium
A payment deferral granted by the creditors of an invaded country, leaving it the resources for its defense without a disorderly default being declared.
A country at war sees its revenue fall and its defense spending soar, while its payments keep falling due. Letting it default in a disorderly way would shut off its access to financing, trigger lawsuits and cost the creditors themselves more. A negotiated standstill is the other path: bondholders agree, through a vote that binds everyone, to defer interest and principal for a set period until a full restructuring becomes possible. Official creditors often grant the same deferral at the same time. For sovereign and credit risk insurers, the question is whether the deferral is a loss: the answer depends on the policy's definition of default, which does not always match that of the rating agencies.
In August 2022, six months after the Russian invasion, holders of about 20 billion dollars of Ukrainian eurobonds approved a two year deferral of payments, and the country's official creditors granted a parallel freeze. The agencies classified the transaction as a selective default; the full restructuring was agreed with bondholders in 2024.
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