Venezuela’s Officially in Default. It’s Meaningless to Investors
By Brendan Walsh
14 de noviembre de 2017 9:58 GMT-6
S&P cuts the sovereign’s credit rating after delayed payments
But most bond investors stand pat believing money on its way
Why Venezuela Is Getting Increasingly Desperate
Why Venezuela Is Getting Increasingly Desperate
Venezuela and its state oil company are now officially in default. Yet bondholders don’t really care.
For most of them, the declarations last night by S&P Global Ratings and Fitch Ratings only confirmed what they already know — PDVSA and the government are late on debt payments amid an unprecedented cash crunch and difficulties getting money through the chain of intermediaries. But what really matters to them is that government officials continue to insist that they’ll make good on their obligations and in fact seem to be making determined efforts to do so.
So while the default makes it possible for a group of aggrieved creditors to band together and demand immediate repayment of their bonds — a move referred to as acceleration — there’s little incentive for them to do so. Venezuela doesn’t have the money to pay all the principal back at once, and a move to accelerate would in reality only lead creditors to restructuring talks with the government or international lawsuits. Both of those options promise to be messy and drawn out. And so given how the government remains eager to pay — despite, it should be noted, its simultaneous, and confusing, claims that it wants to renegotiate the debt — most bondholders figure they’re better off being patient and waiting for delayed payments.
“If bondholders expect coupon payments, then they may refrain from acceleration,” Siobhan Morden, the head of Latin America fixed-income strategy at Nomura, wrote in a note today.
Investors in the credit-default swaps market have different incentives, and those that bought insurance against a default by Petroleos de Venezuela are eagerly awaiting a ruling from the International Swaps & Derivatives Association on whether the failure to make a complete principal payment Nov. 2 constitutes a credit event.
A positive ruling would trigger their insurance, enriching traders who bought default protection. It’s a small market, though, totaling just a net $250 million. PDVSA and the government’s foreign bond debt, about $60 billion, dwarfs that. And that amount is unaffected by the ISDA ruling on swaps.
— With assistance by Ben Bartenstein
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