What Can Be Found in the Venezuelan Bag of Snakes? An Analysis of the Bolivarian Republic's Expected Debt Litigation as Contrasted with the Previous Argentina Bond Litigation

Abstract

The article examines three issues of sovereign debt litigation related to Venezuelan debt securities listed on the Luxembourg Stock Exchange (LuxSE): pari passu clauses, collective action clauses (CACs) and immunities. Firstly, the analysis focuses on the 14 sovereign bonds of the Republic and the kind of pari passu stipulated in them. Research shows that the majority of these bonds have old pari passu clauses, broad interpretations of which pose potential risks for the Republic. This conclusion is supported by the Argentinian pari passu experience. Secondly, research of the CACs, as suggested by the International Capital Market Association, is presented. This allows for the identification of the thresholds required to either avoid or accomplish debt restructuring. Once the thresholds are determined, the study analyzes what sort of CACs exist with respect to the Venezuelan securities. It appears that Venezuela has old generation CACs. Accordingly, it is concluded that restructuring processes would be required on a bond by bond basis, and consequently that the CACs structure of the Republic’s securities are weak. Finally, the notions of sovereign immunities as well as United Nations special immunities are considered in relation to the main Venezuelan asset: Petroleos de Venezuela S.A. In this section the commercial purpose of the company is evaluated particularly in light of the experience of the Banco Central de la Republica Argentina before N.Y. courts during the 2000s. The paper concludes with an evaluation of the potential grant of UN immunities with respect to Venezuelan assets, analogous to that which took place in the case of Iraq in 2003.