Venezuela’s biggest international bondholders have proposed their own plan to restructure the country’s $150bn stack of defaulted debt, arguing that Russian and Chinese governments must shoulder a fair amount of the burden.
In a statement published on Tuesday, the bondholder committee — which represents holders of roughly $8bn of Venezuelan debt — broadly endorsed the opposition government’s plan to treat all creditors equally if it is successful in removing President Nicolás Maduro from office.
But the group, which is led by law firm Cleary Gottlieb and veteran restructuring adviser Mark Walker of Guggenheim Securities, said money lent to Venezuela by the Chinese and Russian governments should not receive significantly preferential treatment if they negotiate separately, as the opposition has proposed.
Some estimates put Russian and Chinese lending to the Venezuelan government at between $23bn and $30bn.
“It is critical that the burden placed on creditors must be equitably shared among all creditors, public and private,” the bondholder group said in their proposal.
“Although there may be legitimate reasons to treat these claims differently from private claims, the committee notes that in the aggregate these claims are considerable and, in some cases, may arise from off-market commercial contracts imposed on the Maduro government or have been accorded especially favourable treatment by the Maduro government, or both,” they wrote.
On July 3, the opposition government led by Juan Guaidó released a policy paper outlining how it would put together a new repayment plan on the country’s unaffordable debt, should it take the political reins.
With the backing of the US and most large countries in Latin America, Mr Guaidó has been trying to unseat Mr Maduro since the start of this year, without success. His opposition says it is the rightful government, given Mr Guaidó’s position as head of the democratically elected Congress, but Mr Maduro retains the control of the armed forces and most state institutions.
Mr Guaidó has pledged equal treatment for all creditors, regardless of what type of debt they hold, which public entity issued it, and whether the creditor had previously gone to a courthouse and received a judgment. In addition, his team said it would investigate unreconciled claims and throw out those connected to alleged corruption in the Maduro or earlier Chávez regimes.
The bondholders said they welcome this process as long as they are “given visibility and a voice”, and the new administration provides them with “timely and transparent information and financial reporting” throughout.
“It is in everyone’s best interests to reach an agreement,” said one person familiar with the matter. “The framework doesn’t need to be contentious.”
Since 2017, Venezuela has been in default on almost all of its debt. US sanctions prohibit trading in securities issued in the impoverished Latin American country, including by the state-run oil company PDVSA, constraining any attempt at a restructuring.
The bondholders conceded that any new government would need to restrict a flood of litigation from lenders, but it cautioned that any curbs should be narrow and shortlived.
“A new Venezuelan government must be given time to address the urgent humanitarian needs of its citizens without the distraction and expense of ongoing litigation,” said the bondholder group. “However, any measures to stay litigation must not fundamentally impair the rights of creditors or undermine Venezuela’s ability to attract private capital.”
The bondholders rejected a so-called “nuclear option” proposed by Lee Buchheit, a former Cleary Gottlieb lawyer who is advising the opposition government, and by Mitu Gulati of Duke University, which calls for an executive order issued by the US government to ringfence Venezuelan assets offshore from seizure by creditors.
Rather, the bondholder group threw its weight behind a strategy proposed by Mr Walker at Guggenheim in which Venezuela would instead pass a new bankruptcy law recognised by the US to protect PDVSA assets and enable the oil company to negotiate a restructuring deal with creditors.
The bondholders stated that after the formation of a new government, they would consider debt-for-equity swap programmes in which they can acquire assets in return for existing debt and a binding commitment to provide fresh funds. Other instruments that pay more if Venezuela recovers faster than forecast would also be of interest.
“Despite the universally acknowledged complexity of the process, we firmly believe that if the restructuring process is well designed and implemented in good faith by all parties, a resolution that serves the interests of Venezuela and its stakeholders can be achieved,” said the bondholders.