×

Venezuela fails to pay on sovereign bonds, industry group says

  • Venezuela's delayed payments on its sovereign debt and bonds issued by state oil giant Petroleos de Venezuela constitutes a failure to pay "credit event," the International Swaps and Derivatives Association determined on Thursday.
  • That means holders of so-called credit default swaps can cash in on the derivatives.

A worker walks past a mural with a PDVSA logo at its gas station in Caracas, Venezuela.
Carlos Garcia Rawlins | Reuters
A worker walks past a mural with a PDVSA logo at its gas station in Caracas, Venezuela.

A derivatives committee has paved the way for investors who bought insurance against a Venezuelan debt default to collect on the policies.

Venezuela's delayed payments on its sovereign debt and bonds issued by state oil giant Petroleos de Venezuela constitutes a failure to pay "credit event," the International Swaps and Derivatives Association determined on Thursday.

The determination that a credit event had occurred, made by an ISDA committee of 15 financial firms, was unanimous. It means holders of so-called credit default swaps can cash in on the derivatives.

Credit default swaps are typically purchased by bondholders who want protection in the event that the debt issuer defaults. They are also purchased by investors who believe a default will occur and want to profit from the credit event.

There is about $1.3 billion in outstanding credit default swaps for Venezuelan sovereign debt and about $250 million for PDVSA, as the state oil company is known, according to Caracas Capital.

Last month, Venezuela started skipping several interest payments in the lead-up to two critical principal payments totaling nearly $2 billion.

The 30-day grace period on the interest payments ended this week. Questions have also lingered over whether PDVSA had defaulted on $1.1 billion in principal due Nov. 2 because some bondholders did not receive their payment within three business days of the due date.

It was not immediately clear which notes triggered the credit event. ISDA said it would offer more details on Monday.

An auction that will determine how much credit default swap holders will be paid is also scheduled for Monday.