JPM
Venezuela/PDVSA A closer look at 4Q debt service
Venezuela and PDVSA bonded debt service is under the microscope in the fourth quarter, with a grand total of $3.77bn owed between October and December. This figure includes PDVSA principal payments of $1.96bn, broken down between the first of four annual maturities of the Citgo-collateralized PDVSA ’20s ($842mn due on October 27) and the final maturity of PDVSA ’17Ns ($1.12bn due on November 2). (Please refer to “PDVSA waiting on the world to (ex) change” and “PDVSA 2016 Debt report” for more information on Citgo’s collateral and value). Table 1 shows a summary of 4Q17 debt service.
Venezuela and PDVSA coupons have 30 day grace periods. There is no grace period on PDVSA principal payments. Venezuela and PDVSA have now made use of grace periods on more than one occasion over the last year, including currently on the four coupons due October 12 and 13. As such, we present in Table 2 an adjusted debt service schedule, highlighting the “final deadline” payment dates incorporating grace periods.
As can be seen by Table 2, Venezuela and PDVSA could in theory use the whole month of October to reserve cash for the end-month amortizations. This would effectively push the final due dates for $1.8bn of 4Q17 coupons into a window between November 10 and January 26, though with the bulk of these ($1.56bn) come due on or before December 18. Venezuela/PDVSA 1Q18 debt service is more moderate, with $1.0bn of coupons coming due, most of which ($705mn) falls due in February. There are $1.72bn of coupons due in 2Q. In terms of amortizations, $1.05bn of Venezuela ’18O’s mature on August 15, with a 30-day grace period on principal as well as interest for Republic bonds. PDVSA ’20s have another $842mn maturity next October, while $1.0bn of Venezuela ’18s mature on December 1 of next year. All told, there is $8.3bn of Republic and PDVSA bonded debt service next year, not counting $650mn of Electricidad de Caracas (Elecar) bonds due April 10, 2018 (these are not cross-defaultable) and an unspecified number of PDVSA promissory notes written to oil sector suppliers and JV partners.
CDS considerations: Latin American corporate CDS can be triggered by: Bankruptcy, Failure to pay, Obligation Acceleration, Repudiation/Moratorium, Restructuring. Latin American sovereign CDS can be triggered by: Failure to pay, Obligation Acceleration, Repudiation/Moratorium, Restructuring. Venezuela and PDVSA coupons have 30-day grace periods. There is no grace period on PDVSA principal payments. The “Failure to Pay” credit event includes a “Grace Period Extension: Applicable” provision. Section 1.46.c of the 2014 ISDA Credit Derivatives Definitions states there is a grace period of 3 business days if there is no grace period specified, or if the grace period is less than 3 days.