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Creditors and interim Guaido government see eye to eye on bonds

Credit: REUTERS/DAVID MERCADO

A group of Venezuela bondholders came out this week in agreement with the country's interim government over an interpretation of a controversial clause on bonds issued by the sovereign and other state-owned entities.

By Paul Kilby

NEW YORK, Oct 6 (IFR) - A group of Venezuela bondholders came out this week in agreement with the country's interim government over an interpretation of a controversial clause on bonds issued by the sovereign and other state-owned entities.

The Venezuela Creditor Committee said in a statement on Monday that it welcomed a recent communique by the interim government and the National Assembly that said that the so-called prescription clause on bonds issued by the sovereign, oil firm PDVSA and electricity company Elecar had not been triggered.

There have been concerns that the clause could act as a loophole to void principal and interest should bondholders fail to act in time to lay claim to billions of dollars worth of Venezuela debt payments that have already been defaulted on.

The language puts a time period for making such claims of 10 years in the case of principal and three years in the case of interest payments.

The clock starts ticking on those clauses on one of two dates, whichever comes latest, either when payment first comes due or when the fiscal agent receives the full amount and it gives notice to bondholders.

Both sides agree on the interpretation of the clause's language and that such conditions have yet to be fulfilled, with the interim government noting last month that "the contractual prescription period has not begun to run in respect of such amounts."

The creditor committee said on Monday that it appreciated "Venezuelan authorities’ commitment to engage with the investor community and to adhere to the rule of law."

The move by the Guaido government is not only good news for bondholders but also might be a way to woo disenchanted creditors who were not supporting the opposition and might have been thinking about taking the default to court, said Russ Dallen, managing partner with Caracas Capital.

"Without the Guaido interpretation, it might have meant that more of the owners of Venezuela's US$65bn in defaulted bonds would have to start suing in the next months," he said.

The conciliatory language comes after holders of the PDVSA 2020 and the interim government lead by Juan Guaido have been at logger heads over bond payments.

Guaido's government has been trying to declare PDVSA 2020s null and void in US courts after the oil company missed a close to US$1bn payment last October on the 2020 bond, which is backed by 51% of Citgo Holdings.

"We hope as well that this message marks a turn away from policies seeking to repudiate debt and a willingness to engage in good faith with those of its creditors that wish to assist Venezuela..." the creditor committee said.

Last month, US Federal District Court Judge Katherine Polk Failla heard arguments for and against the Guaido administration's claims that the PDVSA 2020s were issued illegally.

Should she come out in favor of the holders of those bonds, Guaido can still fall back on the US Treasury protection under the current US government, which recognizes him as the legitimate leader in Venezuela.

Indeed, the US Treasury today once again extended the prohibition to sell or transfer the Citgo assets that back the 2020 bonds issued by PDVSA - this time until on or after January 19, 2021.

That is the day before President Donald Trump or Joe Biden will officially take office in the US, depending on who wins the November election.

"If there is a second Trump administration, they will likely keep delaying that permission because the Trump team believes that Citgo is important for the opposition and for the rebuilding of Venezuela," said Dallen.

(Reporting by Paul Kilby Editing by Jack Doran)

((paulj.kilby@thomsonreuters.com; 646 223 4733; Reuters Messaging: paulj.kilby.thomsonreuters.com@reuters.net))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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