Restructuring Proposal for Venezuelan and PDVSA External Debt

In an economy, heavily dependent on revenues derived from the export of hydrocarbons, it is highly unlikely that Venezuela and PDVSA would be able to continue servicing their financial obligations without plunging the country into an unprecedented economic and social crisis. Amid the growing social unrest in Venezuela due to its current financial turmoil, it appears that a restructuring of both Venezuela’s sovereign and PDVSA’s corporate external debt is inevitable. In setting up a restructuring plan, we strived to align Venezuela’s and PDVSA’s interests with their noteholders’ concerns. On the one hand, it is imperative for Venezuela to procure a high noteholders participation to the restructuring deal in order to obtain a debt relief in an amount sufficient to regain access to the capital markets. On the other hand, two main factors contributing to the fears of the noteholders have to be addressed: (1) the high volatility and unpredictability of the price of hydrocarbons, which amount for more than half of Venezuela’s revenues and (2) the governmental use of the revenues generated by PDVSA for various social purposes. Our restructuring plan suggests a voluntary exchange offer in conjunction with legal mechanisms that would both encourage a high noteholders participation and mitigate the detrimental effect of the actions by potential holdout creditors. At the same time, we propose to alleviate noteholders’ concerns by introducing contractual mechanisms which will ensure a proper management of Venezuela’s and PDVSA’s resources and the honoring of the terms of the exchanged notes.