From Bloomberg
A panel of credit derivatives dealers and investors ruled Thursday that PDVSA’s incomplete principal bond payment was a “failure to pay” event that triggers payouts on credit-default swaps.
As recently as last month, traders had bought a net $250 million of default protection through the swaps market, according to the International Swaps & Derivatives Association.
The panel, which took several days to deliberate, will meet next week to discuss whether to hold an auction to set the rate at which the CDS will pay out, ISDA said on its website. When credit swaps are triggered, buyers of the contracts have their losses covered by the counterparties that sold them the insurance-like derivatives.
Fitch Ratings declared PDVSA in default late Monday, citing the state oil company’s repeated payment delays. The oil company failed to pay yet another $80 million in interest that was due in mid-October on bonds maturing in 2027, and whose buffer period expired over the weekend. Venezuela was declared in default by S&P Global ratings for a similar issue.
While the Venezuelan government has said it wants to renegotiate its global debt, including that of PDVSA, current U.S. sanctions limit its ability to do so — and the first round of creditor meetings, which took place yesterday, were a bust. While officials have said they plan on continuing debt payments in the meantime, the delays have created confusion among creditors about the government’s ability to do so, as well as its true intentions.
Fitch said that it expects PDVSA’s creditors to recover as little as 31 percent on their investment. PDVSA’s 10-year bonds touched a record low of 23.3 cents on the dollar last week. At the same time, the cost to protect against a default by PDVSA hit a record as traders speculated the overdue payment wouldn’t be made in time to prevent the derivative contracts from triggering.
