Can a country go bankrupt under a CDS?

No. Standard sovereign CDS does not include the Bankruptcy credit event, because states are not subject to insolvency proceedings. Sovereign protection is triggered by Failure to Pay, Repudiation/Moratorium or Restructuring.

Did Argentina’s 2014 default trigger CDS even though it wanted to pay?

Yes. A Failure to Pay looks at whether payment reached the holders, not at the debtor’s intent. Argentina’s payment to holders of its restructured bonds was blocked by a US court order in the holdout litigation, the grace period ran out, and the Determinations Committee resolved in August 2014 that a Failure to Pay had occurred.

What is the asset package?

Under the 2014 Definitions, if a sovereign restructuring swaps a listed bond (a Package Observable Bond) for new bonds or other assets, protection buyers can deliver what holders received in the exchange instead of the old bond. It was added after Greece 2012, where most old bonds had been exchanged by the time CDS settled.

Do holdouts prevent a sovereign credit event?

Holdouts can stop a voluntary exchange from binding all holders, so it is not a Restructuring. But a collective action clause can bind them, as in Greece, and a dispute with holdouts can itself lead to a Failure to Pay, as in Argentina.

Sovereign CDS credit events and the asset package

Which credit events apply

Credit event	Standard corporate	Standard sovereign
Bankruptcy	Yes	No
Failure to Pay	Yes	Yes
Restructuring	Depends on region (No R in North America, Mod Mod R in Europe)	Yes, usually full R
Repudiation/Moratorium	No	Yes
Obligation Acceleration	Rarely	Some emerging-market contracts

Failure to Pay works as it does for companies: a missed payment above the payment requirement, after any grace period. See Bankruptcy vs Failure to Pay.

Repudiation/Moratorium

Repudiation/Moratorium is a two-step event designed for states. First, an authorised official of the sovereign disaffirms or challenges its debt, or declares a moratorium or standstill on payments. Second, a Failure to Pay or a Restructuring actually follows within an evaluation period, usually up to 60 days or until the first payment date after the announcement. A declaration alone is not enough: the default has to follow.

Restructuring and holdouts

Sovereign debt crises usually end in a restructuring, and sovereign CDS usually includes full Restructuring. The key question is the same as for companies: did the change bind all holders? A voluntary exchange that holdouts can refuse usually does not. A collective action clause that binds them usually does. See the Restructuring credit event.

Three sovereign cases

Greece, 2012. A voluntary exchange with private creditors did not trigger CDS on its own. In March 2012 Greece used collective action clauses, added to its domestic-law bonds by statute, to bind the holdouts, and the Determinations Committee resolved that a Restructuring credit event had occurred. Most old bonds had already been exchanged, which led to the asset package rules below.
Argentina, 2014. A US court order in litigation brought by holdouts from Argentina’s earlier restructurings blocked a payment to holders of its exchange bonds. The grace period expired, and the Determinations Committee resolved in August 2014 that a Failure to Pay had occurred, although Argentina had sent the funds.
Venezuela, 2017. Late coupon payments ran past their grace periods, and the Determinations Committee resolved in November 2017 that a Failure to Pay had occurred.

Deliverability and the asset package

After a sovereign restructuring the old bonds may no longer exist, or may have been swapped for something worth very little. The 2014 Definitions added asset package delivery for this. Where a listed bond, a Package Observable Bond, is exchanged in the restructuring, the protection buyer can deliver the package of new bonds, cash or other assets that holders received instead of the old bond.

The ordinary characteristics still apply to what is delivered, with sovereign-specific points: Specified Currency matters for local-currency bonds, and some sovereign contracts exclude domestic-law or domestically issued debt.

What to check in the documents

The transaction type the trade uses in the Physical Settlement Matrix, which sets the credit events and characteristics for that region.
Collective action and amendment clauses in each bond, and whether domestic law can change them.
Payment mechanics: the paying agent, the governing law and any court orders that could block payment to holders.
Determinations Committee resolutions for the sovereign, which settle whether and when a credit event occurred.

In practice

Corporate cases first, sovereigns next

The cases CDSBench has published so far are corporates, triggered by Bankruptcy or Failure to Pay. The Failure to Pay test is the same for a state: New Fortress Energy’s missed payment and Venezuela’s are judged on the same grace-period and payment-requirement rules. The sovereign events below are where a country’s case differs.

Read the case: New Fortress Energy 2025 →Read the case: Dean Foods Company 2019 →

Common questions

Can a country go bankrupt under a CDS?: No. Standard sovereign CDS does not include the Bankruptcy credit event, because states are not subject to insolvency proceedings. Sovereign protection is triggered by Failure to Pay, Repudiation/Moratorium or Restructuring.
Did Argentina’s 2014 default trigger CDS even though it wanted to pay?: Yes. A Failure to Pay looks at whether payment reached the holders, not at the debtor’s intent. Argentina’s payment to holders of its restructured bonds was blocked by a US court order in the holdout litigation, the grace period ran out, and the Determinations Committee resolved in August 2014 that a Failure to Pay had occurred.
What is the asset package?: Under the 2014 Definitions, if a sovereign restructuring swaps a listed bond (a Package Observable Bond) for new bonds or other assets, protection buyers can deliver what holders received in the exchange instead of the old bond. It was added after Greece 2012, where most old bonds had been exchanged by the time CDS settled.
Do holdouts prevent a sovereign credit event?: Holdouts can stop a voluntary exchange from binding all holders, so it is not a Restructuring. But a collective action clause can bind them, as in Greece, and a dispute with holdouts can itself lead to a Failure to Pay, as in Argentina.

This guide paraphrases CDSBench’s reading of the 2014 ISDA Credit Derivatives Definitions. The Definitions, the transaction’s confirmation and any Credit Derivatives Determinations Committee resolution govern. Decision support, not legal advice or a Credit Event determination.

More real cases

All cases →

Weekly email

Credit events this week

One short email every Monday: new credit events, what they mean for CDS, and new worked cases. Unsubscribe any time.

We store your email and when you subscribed and confirmed. Privacy

Sovereign CDS: which credit events apply to a country?