cop-v-citgo-pdvsaIn a July 30, 2014 article, citing Russ Dallen, head of Caracas Capital Markets, the Wall Street Journal reported that “Venezuela is looking under couch cushions for coins because they need money . . . . [t]he Exxon and ConocoPhillips judgments are coming any day now and the easiest place to enforce those judgment will be the United States.”
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The Financial Times (“FT”) has reported that this pledge of CITGO Assets as collateral could have severe consequences: “PDVSA’s proposed debt swap is also complicated by the proposal to offer up to 50.1 per cent of Citgo as security for bondholders who agree to the deal. Firstly, it is already the state oil company’s main seizable asset in case of a default; secondly, if it is fully pledged to underpin the bond swap then it would in practice deprive other bondholders of their main security.” FT further reported: “Lawyers say this would therefore probably fall foul of the ‘negative pledge’ clause in PDVSA’s existing bonds. Tellingly, the 442 pages of documentation on the debt swap lists no law firms or investment banks involved.” FT wrote: “This is a worrying sign, in that no counsel for PDVSA, no counsel for Citgo, no counsel for the bondholders, no counsel for Venezuela and no counsel for any of the collateral, paying,trustees is putting their name on this document,’ Russ Dallen of Caracas Capital wrote in a note.” FT continued: “Even if enough bondholders sign up, and the legality of the collateral pledge goes unchallenged, Citgo may prove scant security. If PDVSA defaults on the new bonds then investors can seize 50.1 per cent of the US petrol company, but this would trigger a ‘change-of-control’ clause in Citgo’s own $5bn of debt, making it immediately payable.”