Venezuela oil warrants (Value Recovery Rights) For over 10 years, Venezuela has been reliably making the $3 oil warrant payment every six months.

Venezuela oil warrants (Value Recovery Rights) For over 10 years, Venezuela has been reliably making the $3 oil warrant payment every six months. When Venezuela issued Brady bonds in 1990 in exchange for defaulted debt from the 1980s, detachable oil warrants, called Value Recovery Rights (VRRs) were included in the package. Although Venezuela has retired the bonds, some VRRs remain outstanding. They are not very liquid. They give the holder the right to a maximum of $3 twice a year if the average oil price exceeds a threshold, one that was established to grow with US CPI from a base year around the issue date. The strike price is now in the mid $30s. The price of Venezuelan oil dropped below $30 in December 2016 and in early February is around $28 (CRVZVZBK in Bloomberg). Since the payment amount is based on the 12-month moving average, the price is barely in the money, or still above the threshold, but soon will not be if oil prices remain low. In 2004, shortly after a PDVSA strike, production plummeted, and the payment was delayed by four months due to an inability to make a timely calculation of the average price. Since then, oil prices rose far above the strike price, and for over 10 years, Venezuela has been reliably making the $3 oil warrant payment every six months. Nearly all of the warrants are closely held at this point and trade infrequently and by appointment.