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Venezuela Moves Closer to Restructuring, but Hurdles Remain

Simon Schatzberg, Emerging Markets, Latin America Reporter

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The removal of Venezuelan President Nicolás Maduro on 3 January revived the prospect of restructuring the country’s long-defaulted debt.

Venezuela’s roughly $60 billion in international bonds, issued by the sovereign and state-owned companies and in default since 2017, rallied by around 10 points following the news as investors reassessed the timeline for a realistic start to a restructuring.

Bondholders, including the Venezuela Creditor Committee, have signaled their readiness to begin negotiations once conditions allow. Market participants are already debating the innovative tools that could play a role in a deal. Speculation has centered on mechanisms such as:

  • Value recovery instruments linked to future oil revenues
  • Super-senior sovereign bonds to facilitate new money
  • Exit consents to help restructure bonds that lack collective action clauses

Even with these tools, a restructuring would be extraordinarily complex. At least $40 billion in past-due interest has accrued on the defaulted bonds since 2017, and the country also owes tens of billions in other debt, including arbitration claims and bilateral obligations to China and Russia. Any workout would rank among the largest and most intricate sovereign debt restructurings on record.

A debt restructuring will be only one part of Venezuela’s story over the coming years. As the country works toward political transition and a recovery of its economy and oil sector, cascading effects across other sectors and the broader region are likely.

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