Venezuelan Bond Trouble

The biggest sovereign debt story currently seems to be the ongoing saga of Venezuelan bonds. The challenge then is how to perform a restructuring amid financial sanctions and the general civil disorder within the country.

The proposed solution above seems to boil down to: (1) move PDVSA’s oil assets back to the government, along with (2) swapping PDVSA debt for official government debt. Venezuela’s debt distribution will then become more uniform, allowing for (3) restructuring via a “classic sovereign debt exchange”.

The interesting part to me is that step (1) above was fully disclosed in the offering documents for the bonds. If you have a claim to the assets of an entity, while still allowing for those assets to leave the entity, then just how valuable of a claim do you have? To what extent is it even a claim anymore, if the assets can just be moved out?

Beyond the importance of reading the fine print, another theme here appears to be the general perils of lending to authoritarian governments. In a system where 2 + 2 can equal whatever the government wants, just how trustworthy are some numbers on a balance sheet?

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