Document Type

Article

Publication Date

2017

Keywords

Venezuela, pricing, sovereign debt, contracts

Abstract

Market reports in the summer of 2016 suggest that Venezuela is on the brink of default on upwards of $65 billion in debt. That debt comprises of bonds issued directly by the sovereign and those issued by the state-owned oil company PDVSA. Based on the bond contracts and other legal factors, it is not clear which of these two categories of bonds would fare better in the event of a restructuring. However, market observers are convinced — and we agree — that legal and contractual differences would likely impact the payouts on the bonds if Venezuela defaults. Using a comparison of recent weekly yields for roughly similar PDVSA and pure sovereign bonds, we attempt to gain some insights into the value investors assign to the legal differences between these two categories of bonds.

Comments

Author Original Manuscript with previous title.

Library of Congress Subject Headings

Bonds, Public debts, Debt relief, Venezuela, Contracts--Interpretation and construction

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