Bankruptcy and Non-Bankruptcy Options for PDVSA
This is a joint post by Mark Weidemaier and Mitu Gulati.
We have talked before about the possibility that Venezuelan state-owned oil company PDVSA will need to restructure. With oil prices still low, the early-2017 gloom about the company's economic prospects hasn't lifted. True, the company and its sovereign owner have managed to stave off default for a while now; perhaps this can continue. But restructuring is a real possibility. In our international debt finance class this year, we have been asking students to think about how a restructuring might work.
For PDVSA the options basically come down to bankruptcy and the use of exit consents. We talked about the latter option--basically a voluntary exchange offer in which participating bondholders also vote to eliminate contractual protections in the old bonds, making them less attractive to hold--in an earlier post. For many corporations, bankruptcy would be the preferred option, if only to benefit from the automatic stay of creditor collection efforts. But PDVSA's bankruptcy options are limited. It is a Venezuelan company, and Venezuelan bankruptcy law is not ideal for debtors seeking to restructure. Plus, in order to be worth anything, a Venezuelan bankruptcy proceeding would need to be recognized in the United States, likely under Chapter 15 of the Bankruptcy Code. It isn't clear that a Venezuelan proceeding would merit such recognition. Nor is it clear that PDVSA meets eligibility requirements under US bankruptcy law. Still, bankruptcy offers the only mechanism for imposing restructuring terms on dissenting creditors, and that is what PDVSA most needs (with regard to its bond debt, anyway).