Venezuela Debt Documents Contain Legacy Features That Could Complicate Future Restructuring

In the wake of Venezuelan President Nicolás Maduro’s capture by U.S. forces on Jan. 3, investors are reexamining Venezuela’s bond indentures and offering memorandums to assess the implications for a potential future debt restructuring after years of default, according to sources.

As part of this effort, Octus has compiled relevant documents and information about contractual features across Venezuela’s debt documents and has consulted legal experts who have reviewed the relevant bond documentation. Links to these documents can be found in the “Venezuela External Debt Construction” spreadsheet, HERE.

The primary legal concerns identified in the documents relate to prescription clauses and the treatment of interest following default and maturity, according to sources. Venezuela’s bonds are governed by New York law, which generally provides a six-year statute of limitations for contractual claims once the claim accrues (that is, when one party defaults). In addition, most of Venezuela’s bonds have contractual terms that provide for the prescription of interest after three years, and of principal after 10 years.

Prescription Clauses

Historically, prescription clauses in sovereign bonds were designed to protect fiscal agents by requiring bondholders to present their bonds for payment within a specified period, according to Lee Buchheit, a veteran sovereign debt lawyer, widely regarded as one of the leading architects of modern sovereign debt restructurings.

Over time, these provisions evolved into clauses that purport to extinguish claims entirely if they are not asserted within a defined time frame. Unlike statutes of limitations, which merely bar judicial enforcement while leaving the underlying obligation intact, prescription clauses can void the claim itself, according to Buchheit.

In the case of Venezuela’s Republic bonds, the prescription period begins to run not from the date of default or missed payment but rather from the date on which the fiscal agent has received the full amount due on a scheduled payment date. That condition has not been satisfied, because Venezuela ceased making payments in 2017, meaning the contractual prescription periods in Republic bonds – 10 years for principal and three years for interest – have not yet begun to run, according to Buchheit.

In 2023, the opposition-led 2015 National Assembly and the Maduro administration approved separate tolling agreements with bondholders to suspend limitation periods to 2028. The tolling agreement signed by the Maduro administration, however, applied only to the institutional holders that countersigned that instrument, Buchheit noted, raising the possibility that disputes could still emerge over whether certain claims are time-barred when Venezuela eventually reconciles its debt stock.

Accrual of Interest

Another area of focus has been the accrual of interest following default and maturity. Unlike commercial bank loans, sovereign bonds rarely include “penalty” interest provisions that increase the interest rate upon default. While such step-ups are common in bank lending, they are generally absent in sovereign bonds, including those issued by Venezuela. As a result, the prevailing expectation is that Venezuela’s bonds will continue to accrue interest at their original coupon rate after default and even after maturity, Buchheit explained.

From a legal standpoint, experts emphasized that recent political developments do not alter Venezuela’s underlying debt obligations.

“Even a complete removal of the Chavista regime would not extinguish debts incurred under Chávez or Maduro,” said Buchheit. “Any successor government would inherit the full debt stock.”

Below we detail Venezuela’s debt stock, including claims construction on bonds issued by Venezuela, state oil company PDVSA and electricity company Elecar, and estimates for other non-bond debt. Roughly $59 billion in face amount of Venezuela, PDVSA and Elecar bonds and $43.7 billion of PDI tallies to $102.5 billion in claims as of Jan. 16, 2026. We estimate an additional $69 billion in other non-bond debt.

Collective Action Clauses and Holdout Power

One of the primary structural weaknesses in Venezuela’s bonds remains the limited effectiveness of their collective action clauses, or CACs, according to Buchheit. CACs are contractual provisions that allow a supermajority of bondholders to approve changes to payment terms and bind all holders, including dissenters – similar to “Required Lender” provisions in commercial credit agreements and indentures.

Most Republic of Venezuela bonds contain older, series-by-series CACs that require approval thresholds of 75% and in some cases 85%, while at least two outstanding bonds issued in the 1990s lack CACs altogether. This means that restructurings would need to proceed on a series-by-series basis rather than through a single aggregated vote at relatively high thresholds, allowing coordinated holdouts to potentially block a deal in specific bond series, according to Mark Weidemaier, a professor of law at the University of North Carolina and leading expert on sovereign debt contracts, including Venezuela’s.

“The restructuring is hard because the bonds have weak collective action clauses and there are many creditors outside those clauses,” said Weidemaier. “That doesn’t make it impossible, but it does make it complicated and time-consuming. There’s nothing fundamentally exotic about the bonds – they’re just older. Without modern aggregated CACs, this will look more like an old-school restructuring than recent cases like Argentina.”

Protecting Assets From Attachment

Asset protection is an equally significant concern, Weidemaier explained. Venezuelan assets, particularly oil receivables, are vulnerable to attachment by creditors. Without credible protections for these assets, nonparticipating creditors may seek preferential recoveries.

Recent U.S. actions, including discussions around placing oil receivables into U.S.-controlled accounts that are shielded from attachment or other judicial process, suggest growing awareness of the need to protect cash flows, according to Weidemaier.

“The unresolved question is whether this awareness will translate into a durable legal framework capable of preventing holdouts from attaching oil revenues,” he said. “Without such a framework, executing a comprehensive restructuring would be more complicated.”

The scale and diversity of Venezuela’s outstanding claims exacerbate this problem, according to Weidemaier.

“In addition to bonds, there are large volumes of promissory notes issued by PDVSA during periods when it lacked sufficient cash to meet its obligations,” said Weidemaier. “These notes were never comprehensively disclosed. They were transferable and may now be held by a wide range of investors. Venezuela also faces arbitration awards and other bilateral claims that can only be restructured through individual negotiations.”

Each non-bond creditor could have an incentive to hold out in the hope of extracting better terms once fiscal space is freed up through a broader restructuring, according to Weidemaier. This dynamic is familiar from other sovereign debt cases, where creditors may calculate that the government will find it easier to pay them off than to endure prolonged litigation and economic disruption.

“Governments typically attempt to counter this behavior through asset protection measures and contractual assurances such as most-favored-creditor clauses, which aim to reassure participating creditors that no one else will later receive better terms,” said Weidemaier. “However, these assurances cannot prevent creditors from achieving superior recoveries by attaching commodity exports, or from cutting better deals once contractual protections expire.”

In a conventional restructuring scenario, a government would suspend servicing all obligations and announce a process under which all creditors would be offered broadly comparable treatment. An administrative claims-validation process would establish the nominal value of each participating claim. For bondholders, this process is relatively straightforward; for non-bond creditors, it is more complex and subject to greater scrutiny, according to Weidemaier.

The government might also seek to adjust claims issued at deep discounts by treating them as high-coupon instruments rather than recognizing their full face value. Once this process concludes, creditors would decide whether to participate. Bondholders could be bound through CACs if voting thresholds are met, while arbitration creditors and blocking minorities would retain the option to opt out, Weidemaier explained. Nonparticipants could pursue litigation, seeking court judgments and attempting to enforce them against Venezuelan assets abroad.

“For a commodity exporter like Venezuela, enforcement is challenging but feasible, particularly given its reliance on oil exports to generate foreign exchange,” said Weidemaier.

The Iraq Playbook

As part of a restructuring, Venezuela could offer bondholders equity-like value recovery instruments tied to the financial performance of certain state-owned energy companies, and there have already been discussions about offering them, as previously reported. Such instruments are common in complex restructurings and are well suited to situations where there is potential for economic recovery, according to Weidemaier.

“These structures can help bridge the gap between investor expectations and the issuer’s limited capacity to commit to fixed payment terms,” he said. “However, the design of recovery instruments is secondary to the more fundamental challenges of creditor coordination and asset protection.”

Investors and legal analysts have drawn comparisons between Venezuela’s situation and Iraq’s debt restructuring following the 2003 U.S. invasion. The analogy rests on similarities such as a large and diverse debt stock, a substantial population of non-bond creditors and an export-driven economy vulnerable to disruption of commodity receivables.

In Iraq’s case, the United States was highly motivated to facilitate a successful restructuring and took extraordinary steps to protect Iraqi assets. This included changes to U.S. law and coordination with the United Nations to shield oil receivables from creditor enforcement. The UN Security Council adopted a Chapter VII resolution immunizing Iraqi oil assets from judicial attachment worldwide, enabling a rapid and deep restructuring.

The UN Security Council resolution “was a very powerful club” that helped push Iraq’s commercial creditors to accept a restructuring deal “with incredibly deep haircuts,” according to Steven Kargman, president of Kargman Associates.

“The Security Council resolution was very sweeping in immunizing Iraq’s assets, and it effectively pulled the rug out from underneath the commercial creditors,” he said. “Creditors couldn’t pursue enforcement actions against any of Iraq’s petroleum or petroleum-related assets and the revenues generated by those assets. Without the ability to enforce against Iraq’s assets, the creditors essentially lost all of their leverage vis-à-vis Iraq and were essentially left with no alternative but to agree to the restructuring with its extremely steep haircuts.”

Some legal experts have expressed skepticism that the Trump administration would pursue comparable measures for Venezuela.

A similar Security Council resolution protecting Venezuelan assets would be virtually impossible, in Kargman’s view, given the near-certain opposition from Russia and China, which have veto power as permanent members of the Security Council. The two countries are Venezuela’s largest bilateral creditors, with their own distinct interests in the country – interests that are now even more sharply at odds with those of the U.S. after the capture of Maduro.

Also, the makeup of Iraq’s creditor body was “far simpler” than that of Venezuela, Kargman noted, because of the absence of bondholders in Iraq’s case and the significant proportion of bilateral creditors, both Paris Club members and non-Paris Club members.

“With Paris Club creditors holding major claims, the U.S. drove a deal in the Paris Club and used it as the template for negotiations with non-Paris Club bilateral creditors and commercial creditors,” he said. “The Paris Club ultimately became the fulcrum of the process even though non-Paris Club bilaterals, particularly the Gulf states, held larger claims in the aggregate than the Paris Club members.

Even so, Kargman stressed that securing agreement with the U.S.-proposed Paris Club template still required heavy diplomacy, including the Bush administration’s dispatching of former Secretary of State James Baker to key capitals around the world to bring Gulf and other bilateral creditors on board.

In addition, the United States government’s view on the role a debt restructuring should play in a country’s recovery is likely different for Venezuela and Iraq.

“Unlike the Bush administration’s clear mandate to eliminate most of Iraq’s legacy debt in order to kick-start economic recovery, [Trump’s] priority appears to be economic recovery through oil sector revitalization rather than comprehensive debt relief,” said Buchheit.

Unpredictable U.S. Policy

The restructuring outlook is further complicated by uncertainty around U.S. policy objectives. Any meaningful signal of change would likely come through U.S. sanctions policy, according to Buchheit.

There is a tension between a strategy focused on stabilizing Venezuela’s economy and facilitating a comprehensive restructuring and another aimed at extracting oil revenues and concessions for the U.S.’ benefit. The latter approach would likely result in lower recoveries for bondholders, according to Weidemaier.

“There is no clear indication that the U.S. administration has a plan extending beyond the near term, and policy appears to be evolving in real time rather than following a coherent long-term strategy,” he said. “As a result, it would be surprising if there were any concrete plans to address Venezuela’s sovereign or PDVSA debt at the time of Maduro’s removal or even now.”

Oil companies with existing claims against Venezuela, such as Chevron or ConocoPhillips, have incentives to pursue arrangements that allow debt recovery through structured oil production with limited new capital expenditure, according to sources. These arrangements raise complex issues around creditor priority, as preferential treatment for oil companies would conflict with restructuring principles, but they remain attractive in the near term, according to a legal advisor who has been contacted by oil companies looking to get involved in the country. However, interest from these companies is tempered by political risk, including uncertainty around future U.S. administrations, the durability of U.S.-backed arrangements and potential congressional scrutiny, according to the legal advisor.

Recent market optimism surrounding Venezuelan bonds appears difficult to reconcile with these complexities, according to sources. While increased trading activity may reflect growing belief that restructuring will eventually occur, this should not be mistaken for confidence in an imminent or straightforward process, sources said. A comprehensive restructuring is expected to be a long-term endeavor, with the focus on oil-sector developments and limited institutional rebuilding in 2026, according to sources.

International Monetary Fund involvement is widely seen as essential for any credible restructuring, yet it remains absent. “The IMF has not conducted Article IV consultations with Venezuela since 2004, and even under optimistic assumptions, it would take many months to assess the country’s economic and fiscal position and develop a debt sustainability framework,” said Buchheit. “Even relatively simple restructurings have taken years, and Venezuela’s case is significantly more complex.”

An IMF spokesperson said on Thursday that the fund could renew its relationship with Venezuela if a majority of its members by voting power recognize the government.