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. Last Updated: 07/27/2016

'Vulture Fund' Forces Default On Nizhny Novgorod Bond

LONDON -- Nizhny Novgorod region, which is seeking to reschedule a $100 million Eurobond after missing a coupon payment this month, said Friday that one investor had called the deal formally into default.

The region said the investor, which it described as a "vulture fund," held $2.6 million face value of the bond.

A statement issued via Dutch investment bank ING Barings said Nizhny Novgorod was "disappointed" by the default call, but would continue talks with other bondholders next week.

The statement said a majority of bondholders at discussions in London last week had been supportive of Nizhny Novgorod's plans for an orderly workout. It said a small number of investors who had purchased bonds at below current prices were trying to force a formal default on the deal.

"These vulture funds clearly do not understand the reality of Nizhny Novgorod's financial position," said regional Deputy Governor Stanislas Rybushkin.

"[However], the region fully intends to pursue the constructive resolution, with meetings with bondholders in London next week."

Nizhny Novgorod launched the bond, which matures in October 2002, two years ago via ING Barings.

It first proposed rescheduling terms in September, but went into technical default after failing to secure investor approval to delay a $4.3 million interest payment that fell due Oct. 3.

The region says it has no cash to service the debt. Its failure to pay the Oct. 3 coupon made it the first Russian municipality to default on Eurobonds.