Deterring holdout creditors in a restructuring of PDVSA bonds and promissory notes

Abstract

We hold these truths to be self-evident: ... The scarcest commodity on this planet is free legal advice. Yet, that is precisely the substance that the Venezuelan authorities-to-be have recently been receiving in astonishing abundance. Commentators have already suggested seven or eight possible ways to minimize holdout credit behaviour in a future Venezuelan debt restructuring. These ideas range from putting PDVSA into a full-blown bankruptcy proceeding, to shifting the concession to lift and sell oil from PDVSA to a new company, to more modest proposals that would use the provisions in the existing PDVSA/Republic of Venezuela bonds to discourage prospective holdouts and defuse the legal risk posed by those who insist on holding out. The situation is complicated by the fact that PDVSA, in addition to its approximately $25 billion of outstanding bond indebtedness, has also been issuing free-standing New York law-governed promissory notes to discharge its obligations to its unpaid suppliers. Estimates of the aggregate size of the promissory note issuance vary widely, from $3 billion to as much as $14 billion. Either way, a chunky number that could not be ignored in a debt workout.