Bondholders Threaten after Bulgaria’s Corpbank Defaults

Holders of dollar-denominated bonds at Bulgaria’s Corporate Commercial Bank, aka Corpbank, could resort to legal action against the government if the bond defaults and the bank is tipped into insolvency, according to a Reuters report.

The prospect of a default has risen since a run on deposits at Corpbank, Bulgaria’s fourth-largest lender, in June. This prompted the central bank, the Bulgarian National Bank, to intervene by shutting down its operations and barring depositors from taking out money.

Reuters reports that there is still no solution in sight for a rescue of the bank, whose closure sparked the country’s worst banking crisis since the 1990s, especially after lawmakers rejected a proposed rescue package earlier last month.

The maturity of the bond, which had an original issue of US$150m, falls on 8 August.

The report adds that a group of bondholders, including hedge funds and institutions in the US and Europe, have formed a committee and hired legal representation in Bulgaria to act should the government tip Corpbank into insolvency – an action that one hedge fund manager described as carrying the risk of Bulgaria becoming “the Argentina of Europe”.

The Bulgarian National Bank has said that it will ask independent auditors to conduct a thorough audit of Corpbank until 20 October, effectively extending its control over the bank.

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