Evaporating profits at highly leveraged Russian companies could soon present foreign bondholders with a painful choice: debt restructuring or default.

The Kremlin already spent $10 billion to bail out the country's tycoons when they faced margin calls in September's stock market collapse and could be forced to reopen aid.

"A new wave of corporate defaults is inescapable, the massive violations of certain covenants could happen as early as in the end of the second quarter," said Zinaida Psiola, portfolio manager at Clariden Leu.

Russian companies face about $130 billion in scheduled debt repayments this year, and the fortunes of some of Russia's richest men could soon be in the hands of lenders as earnings at industrial giants are hit by the economy's swift decline. Foreign corporate debt has so far been kept under control. But for some borrowers, they could suddenly rise to unmanageable levels if early repayment covenants are triggered by poor earnings, leading to potential defaults and risk of bankruptcy.

"We do not expect the borrower's credit quality to improve. The opposite is most likely. And chances the covenants will be breached are rising," said Maxim Tishin, portfolio manager at Deutsche, with $250 million in Russian eurobonds and ruble bonds under management.

Severstal, Russia's largest steelmaker, has opened the first-quarter reporting season with a forecast-lagging, second consecutive quarterly loss, signaling that more bad news is ahead, analysts say.

The most typical covenants for Russian corporate eurobonds are leverage restrictions, most often a maximum ratio of debt to earnings before interest, taxes, depreciation and amortization. Change-of-control clauses, capital adequacy ratios for banks and minimum credit ratings are also there, analysts say. Syndicated and bilateral loan rules are less transparent, said Anastasia Mikharskaya, debt analyst at Bank of Moscow.

Forecasting financial meltdown is hard, because company results are often published months after the covenants were actually violated.

Russia's economy has been severely hit as demand for core exports such as oil, metals, coal and chemicals falls dramatically and losses mount.

"Metals companies are in the risk zone, developers too, but they borrowed through the loans. Oil producers and retailers look better," Mikharskaya said.

Russia's highly leveraged steelmakers have run up debts of more than $30 billion and are now under the microscope. Debt incurrence covenants could be breached if companies' free cash flow turns negative and they need to raise new debt just to keep operating.

"Severstal should keep its total-debt-to-EBITDA ratio below 3 [if it wants to stay in line with its covenants] and is already around 2.7," said Alexei Bulgakov, analyst at Troika Dialog.

"But we expect the ratio to be as much as 7 by the end of the year. Evraz could breach the covenant in the second half of the year with the ratio climbing to 4 or 6 end-year."

TMK is already close to its total-debt-to-EBITDA limit of 3.5, reporting 3.2 at the moment, Bulgakov said.

Banking is another sector that bondholders are watching closely as rising bad loans erase profits and eat into capital, raising the risk that change of control, capital adequacy and ratings-linked covenants could be violated.

Investors will focus on the change-of-control covenant as the consolidation in the sector intensifies: Five banks from the top 50 have crashed and changed owners since the crisis hit the country with full force last September.

Russian companies launched tough restructuring talks with foreign lenders after the state almost fully withdrew refinancing aid, having spent only a fraction of its budget to bail out oligarchs facing margin calls.

The state shifted aid to banks and ordered them to lend to the real economy. But with debt markets closed to all but top-drawer borrowers, the state is still viewed as the lender of last resort.

So far, negotiations concern mainly bilateral and syndicated loans, but investors and analysts say the number of companies in talks on eurobond restructuring is rising. Some buy back their bonds rather than confronting lenders.

"We have bought back $250 million of eurobond issue because we feel uncomfortable. There was a high chance our rating would be downgraded, triggering covenants," an executive from a major Russian bank said.

Even in the worst-case scenario, some bondholders might accept a partial payment of the outstanding debt upfront to avoid a total default. Others may be less forgiving.

"Maybe someone would be happy to restructure one security into another, but I prefer cash," said Clariden Leu's Psiola.

"If a borrower wants to save face, it starts to buy its bonds back. And what we see is many companies have been coming for their bonds since January."