PDVSA's Hail Mary: A Chapter 15 Bankruptcy Solution

A Chapter 15 bankruptcy is the best option for restructuring PDVSA’s debts because it would provide PDVSA with benefits that no other restructuring can offer — it would protect PDVSA’s assets and restructure its debts through one unified process. Venezuela could enact a Chapter 15 solution in four steps: (1) create a Venezuelan public-sector bankruptcy law, (2) comply with Chapter 15’s eligibility requirements, (3) obtain recognition by U.S. courts for PDVSA’s bankruptcy proceeding, and (4) confirm a bankruptcy plan that can be enforced by U.S. courts. The barriers for each step are high, but examples from other countries suggest it is possible a Chapter 15 restructuring would be successful. Even if PDVSA is unable to confirm a bankruptcy plan, PDVSA would receive significant benefits at each stage in the process. A Chapter 15 proceeding could provide a stay to protect PDVSA’s assets from creditors as well as protect its non-Venezuelan entities, such as CITGO. Additionally, at each stage bankruptcy gives PDVSA leverage over creditors to make a restructuring deal out of court. Because of the unique benefits offered by Chapter 15, it is PDVSA’s Hail Mary — it comes with definite risks, but the potential for a high payoff.