Abstract
A few weeks ago, two of us posted a draft research paper on the pricing of Venezuelan sovereign bonds. We wanted to know to what extent bond prices incorporated information about contract terms, and whether any such price effect might vary depending on the financial condition of the borrower. Venezuela makes a good case study because it has a number of New York-law bonds outstanding with different contract terms, and because it is experiencing severe financial distress. In particular, Venezuelan sovereign bonds have different voting thresholds for restructuring, and different pari passu clauses. The bonds issued before 2003 require unanimous (100%) consent of the bondholders to change financial terms, and have pari passu clauses that can be used, Argentina-style, to enforce payment. Those issued after 2003 can be restructured with the vote of either 85% or 75% of the bondholders, and have pari passu clauses that make for weaker enforcement tools. Neither the prenor the post-2003 bonds permit aggregated voting across different bond series.
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