Venezuela’s competing governments ready PdVSA 2020 payments, alternatives as 27 April looms
17 April 2019 | 18:06 BST
Venezuela’s two competing governments are readying interest payments and evaluating options for Petroleos de Venezuela’s (PdVSA) 8.5% 2020 senior secured bonds, highlighting the struggle between de facto President Nicolas Maduro and Interim President Juan Guaido to protect state assets, a source at PdVSA and a source close to the situation said.
PdVSA must make a USD 71m interest payment on 27 April to avoid Citgo, the crown jewel of PdVSA, falling into the hands of the PdVSA 2020 bondholders, who can foreclose on their collateral if funds are not in place at the end of a 30-day grace period. PdVSA’s PDV Holding (PDVH) subsidiary pledged 50.1% of the equity of Citgo Holding to guarantee the 8.5% 2020 bonds, issued in a September 2016 bond exchange.
Complicating both governments’ efforts to protect Citgo is the US Treasury’s Office of Foreign Assets Control’s (OFAC) 19 July issuance of Venezuela General License 5, allowing the 2020 bondholders to gain access to the collateral and enforce their rights in event of non-payment.
According to the Caracas-based PdVSA source, the USD 71m payment is already with the state-owned oil company’s bank intermediaries.
Asked whether the payment will arrive to bondholders on time or within the 30-day grace period, the PdVSA official said timing of the payment will “depend not on PdVSA, but on the bank intermediaries and the time it will take those institutions to consider how current US sanctions will affect the coupon payment delivery processes.”
The “expropriation” of Citgo by the Guaido government does not remove Maduro’s intention to stay current on PdVSA coupon payments, as Maduro’s legal team evaluates legal options against that action, the PdVSA source said. Guaido, declared president by the National Assembly and recognized by the US, has appointed a new Citgo board, and the US entity has moved to cut itself off from PdVSA, which is subject to sanctions by OFAC.
Guaido’s finance team, meanwhile, has publicly communicated that best efforts will be made to ensure payment of the PdVSA 2020 coupon, though before a payment can be made, Guaido’s team would first need National Assembly approval followed by US Treasury approval to tap funds located in an account opened by the US government for the benefit of the Guaido government, a source familiar with the matter said.
“Best efforts will be made to make the PdVSA 2020 payment, but it doesn’t only depend on the legitimate government of Juan Guaido,” the source close said. The secured 2020 bond is the only Venezuelan government bond that the government has continued to service.
Indeed, even if Venezuela’s interim government wants to pay the coupon, the intention to pay is not universally shared in the National Assembly, the source familiar said.
Even if the National Assembly is in agreement about paying, they still would need to win over the US Treasury, which itself has a split view on whether it is worth it to preserve Citgo for Guaido’s administration, as so many other parties are gunning for the assets, the source familiar said.
Guaido’s team feels — all else being equal — that it would be useful to keep Citgo in the family, and that is why they have been resisting seizure efforts by creditors including Crystallex International. The Canadian miner recently asked the US Third Circuit of Appeals to affirm a Delaware District Court decision allowing it to proceed with efforts to seize assets to enforce a USD 1.4bn arbitration award.
Guaido’s Attorney General, Jose Ignacio Hernandez, told Debtwire last month that his government was eyeing talks with PdVSA 2020 holders, as it analyzed payment options for the 27 April coupon, including a waiver request.
The Guaido team has since initiated conversations with PdVSA 2020 bondholders, a second source close to the situation said.
Select PdVSA 2020 holders told Debtwire earlier this month they are ready to move on their Citgo Holding collateral in the event of a default. At least one PdVSA bondholder Debtwire spoke to was open to discussions and requested that Guaido’s team to make a comprehensive offer to all PdVSA 8.5% 2020 bondholders, instead of communicating with specific subgroups or taking a piecemeal approach to discussions.
OFAC is allowing bondholders to enforce rights related to the PdVSA 2020 bond to prevent the Maduro regime from using the Executive Order to default on its bond obligations without consequence, according to OFAC’s FAQ 595. General License 5 continues in effect and remains operative despite OFAC’s designation of PdVSA.
Under PdVSA’s 2020 bond offering memorandum, in the event of the declaration of any event of default, the PdVSA trustee may, at the written direction of holders of at least 25% in aggregate principal amount of the notes — voting as a single class — institute proceedings to seek or enforce any remedy to protect and enforce any of its rights or powers with respect to the collateral, including directing the collateral agent to enforce the security interest created pursuant to the Citgo Holding share pledge agreement.