Forma et materia

February 20, 2026

Tags:#Publications

Author: Authors: Dmitry Rumyantsev, Mikhail Malinovsky, Pavel Parshin

We are launching a series of publications on the state of the bond debt market. In this piece, we will discuss approaches to managing defaults, and in the next prequel piece we will delve into the causes of the current situation.

2025 was marked, among other things, by a record increase in the number of defaults, mainly in the high-yield bond sector. The current macroeconomic backdrop — a prolonged period of tight monetary policy and a shift in expectations for a key rate cut to a later horizon — leaves no doubt: in 2026, the wave of non-payments will not only continue, but may also affect segments previously considered more stable. The events of the beginning of the year only confirm this troubling forecast.

Within the professional community and among infrastructure institutions, a certain debate has emerged regarding the development of approaches to the procedure for interaction with the issuer after a default has occurred. In the current reality, this issue has naturally come into investors’ focus.

In our view, part of this debate revolves around a secondary issue. Considerable attention is given to the actions of the bondholders’ representative (BHR) as a “fail-safe mechanism” for initiating formal procedures:

1) upon a default, it sends a demand for the early redemption of all bonds and a pre-trial claim demanding repayment of the debt;

2) 30 days after the claim is sent, the BHR goes to court to protect the rights and legitimate interests of the bondholders;

We note separately that such an approach runs counter to Eurobond practice, where, depending on the documentation, the trustee, although it may have the ability to independently initiate enforcement procedures, does so only if there is a resolution from the bondholders and funds are advanced to cover expenses (including because decisions of this kind fundamentally affect the credit quality of the asset and its issuer).

Implementing this algorithm is highly likely to result in the initiation of insolvency proceedings against the issuer, with the BHR acting as a representative of a pool of unsecured creditors. In some investor communities, this approach is viewed positively — as a resolute protection of bondholders’ rights.

We disagree with this approach. In our view, such logic does not solve the problem. We risk becoming absorbed in procedural rules and losing sight of the main goal — capital preservation.

It is important to remember the root cause of the current wave of defaults. The majority of issuers placed securities at high rates in anticipation of a swift and sharp easing of monetary policy. Retail investors were often used as a last-resort source of financing. The strategy of refinancing debt at a lower rate has failed. Businesses have faced an inability to service interest due to increased debt burdens and lack of access to cheap money.

Thus, the central problem lies by no means in the regulatory scope of the BHR. In the conditions of a structural crisis, all market participants and infrastructure providers must act together, united by a common goal — minimizing investors’ losses and restoring the credit quality of instruments.

Why is a formal approach not suitable? A BHR’s recourse to court almost always leads either to the issuer’s bankruptcy, or to the inability to carry out further restructuring (withdrawing the claim requires 90% “quorum”), or may even be used as a tool aimed at making it difficult for bondholders to protect their rights independently. The issuer is practically always leveraged by banks that have all of the issuer’s assets as collateral (if the issuer’s situation were different, it would have the ability to obtain refinancing). In such proceedings, bondholders will almost certainly receive zero recovery on their claims. The “fail-safe mechanism” turns into a mechanism for guaranteed capital loss.

The very logic of bankruptcy in our jurisdiction does not assume prioritization of the costs of necessary business changes. The arbitration manager and the court specialize in procedures, not in administering business change. Bankruptcy practice in Russia has been shaped over decades through managed bankruptcy procedures, where different participants sought to salvage assets rather than build businesses. This has created certain patterns in the way bankruptcy specialists perceive situations. This cannot be changed overnight, even by introducing new rules.

In our view, the only attempt to manage the current default situation in the market may be a comprehensive restructuring at the issuer, linked not only to a postponement of debt instrument payments and a reduction in the rate, but also to a reconstruction of the entire business model, which is subject to external verification involving all interested parties and the engagement of a specialized adviser.

For the purposes of a full-scale restructuring, both creditor banks and bondholders, as well as their representatives and the influencers who comment on a company’s situation (and also market companies entering the market), should become active participants in the discussion and be able to answer the following questions:

1) Which business segments can be restored, and which have already been lost — and therefore how should the company’s liabilities change (often this also implies debt write-downs — the recognition of risks that have already materialized)?

2) What will change in the business model?

3) Who will manage these changes?

4) How will investors be able to benefit if the business is restored?

5) How can the new model and restructuring terms obtain state protection — obviously, there will always remain a “special situations” segment of the industry, aimed at super-profits from litigation over distressed debt and greenmail?

Today, all of these areas are desperately short of legal tools, although the industry continues to find innovative solutions.

Under such an approach, when a technical default occurs, the BHR enters into negotiations with the issuer regarding the manner in which the bond obligations will be performed, gives the issuer time and its expertise to prepare proposals for settling the debt owed to bondholders and adjusting the business (restructuring terms). Only if the bondholders do not agree with the restructuring plan does it move to judicial protection. It should be understood that in practice, in major foreign restructurings, more time is devoted not so much to forming and approving commercial terms, but to a deep expert verification of the issuer’s updated business model, on which the possible commercial restructuring terms depend. Such immersion takes months and requires a high level of qualification from the parties. It would make sense to consider developing an approach under which the BHR could join the standstill of banks and other creditors to allow time for such analysis to be prepared.

Of course, such an approach is applicable only to bona fide borrowers, and we hope they are the majority, thanks to the fact that recently all market participants have been focused on conducting in-depth due diligence of companies being brought to market (if this assumption is incorrect, then a substantive approach implies the need to fine-tune the market precisely at the stage of product creation and placement).

Criticism of the approach may center on the success rates of such procedures. Foreign practice indicates that only about 30% of completed restructurings lead to the full restoration of a company’s business and solvency. This statement, while formally valid, does not withstand criticism. Thirty percent is certainly better than zero. If there is a chance to save at least part of the capital and restore credit quality, that chance must be used. Any reduction in losses is already a victory compared with the almost guaranteed debt write-off in bankruptcy.

Accordingly, the efforts of market participants and infrastructure providers should be directed toward developing uniform and clear practices for conducting restructurings. The current regulation contains a pool of gaps and excessive complexities that, instead of protecting investors’ rights, block the ability to reach agreement.

One of the problems is the “quorum” for the bondholders’ meeting. In market issues with a large number of retail investors, it is practically impossible to achieve, as practice has repeatedly confirmed. Discussions about lowering the “quorum” threshold at a reconvened meeting have been ongoing for a long time; recently, a piece by representatives of the Bank of Russia was published, offering a quality review of possible reform directions. We hope that this discussion will soon move into the practical sphere. We also believe it may be worthwhile to consider another adaptation of Eurobond rules, under which a reconvened meeting with the same agenda has the same record date, and the votes of investors who voted previously are automatically counted again on the reconvened vote if no new ballots were received from them.

Thus, we believe that in a crisis situation, market participants and infrastructure providers need to join forces and focus on developing approaches and tools that allow bondholders’ losses to be minimized and the credit quality of debt instruments to be restored. Only by creating conditions for rescuing businesses and restoring the credit quality of debt will we be able to speak of achieving ambitious goals such as doubling the capitalization of the Russian stock market by 2030.

Authors: Dmitry Rumyantsev, Mikhail Malinovsky, Pavel Parshin