Bloomberg Intelligence) -- PDVSA and Venezuela sovereign bond valuations balance the desire and ability of the government to continue meeting bond maturities vs. the likelihood of a regime change that includes restructuring all dollar-denominated debt. The probability of a default over the next year depicted in current credit spreads reflects both the chances of a new regime and the current government's inability to pay debt maturities when due. (09/18/17

BI Integrated Oils, Global Dashboard | BI »
Jaimin Patel | BIO »
Team: Credit
BI Senior Credit Analyst
1. Dual Probabilities Drive PDVSA, Venezuela Bond Valuations

(Bloomberg Intelligence) -- PDVSA and Venezuela sovereign bond valuations balance the desire and ability of the government to continue meeting bond maturities vs. the likelihood of a regime change that includes restructuring all dollar-denominated debt. The probability of a default over the next year depicted in current credit spreads reflects both the chances of a new regime and the current government's inability to pay debt maturities when due. (09/18/17)

Venezuela, PDVSA Default Risk in CDS Spreads May Be Overstated

The 90% implied probability of default before Dec. 31, 2018 reflected in Venezuela and PDSVA credit default swap spreads, using intrinsic value estimates of 54 cents and 47 cents on the dollar for their respective bonds, may overstate the actual risk of default. (09/18/17)

2. Venezuela, PDVSA Cash Reserves May Avert Default Until Late 2019

PDVSA's $8.1 billion of balance sheet cash at June 30 and Venezuela's remaining foreign-exchange reserves should be sufficient to meet PDVSA bond maturities of $2 billion remaining in 2017 and $2.1 billion of sovereign bond maturities in 2018. Indeed, in the absence of a debt restructuring, a payment default may not occur until October 2019, when a combined $3.3 billion of PDVSA and Venezuela bonds are scheduled to mature.
Venezuela's international reserves have been in steep decline over the past five years, unlike those at regional peers Brazil, Mexico and Argentina. (09/18/17)

PDVSA: Intrinsic Bond Values
Implied Value May Be Higher For Venezuela Bonds vs. PDVSA's

Given scant reliable financial information and highly uncertain legal implications, a loss given default for PDVSA and Venezuela sovereign dollar bonds is very difficult to ascertain. Current bond prices may indicate a higher average intrinsic value for Venezuela over PDVSA bonds. (09/18/17)

3. PDVSA Bond Prices Reflect 47% Intrinsic Value, Plus 

PDVSA's unsecured dollar bonds with bullet maturities beyond 2018 trade at prices of 30-47 cents on the dollar -- with price differences largely tied to bond coupons. These prices and coupons appear to be best correlated to an intrinsic value for each bond of 47 cents on the dollar, plus two or three semi-annual coupon payments. This determination uses a 50% short-term annualized discount estimate and assumes a restructuring or default will take place at the end of 2018.
Peer Comparison: PDVSA's bonds have among the highest yields among intermediate-maturity dollar peers that haven't defaulted. Issues from California Resources, Concordia International, MBIA Insurance and Denbury Resources are some of the very few with higher yields. (09/18/17)

4. Venezuela Bonds Indicate Higher Intrinsic Value vs. PDVSA 

Venezuela sovereign dollar bonds with maturities beyond 2018 trade at prices of 35-46 cents on the dollar, similar to that of PDVSA bonds. Yet the higher average coupon on the sovereign bonds implies the market places a greater intrinsic value of 54 cents on the dollar -- utilizing a 50% short-term yield estimate and assuming a restructuring or default will occur at the end of 2018. This compares to 47 cents for PDVSA bonds. (09/18/17)