Venezuela’s First Coupon Default Plus Markets and Comment

9 November 2017

So, if Venezuela has not paid the Electricidad de Caracas 8.5% of April 10, 2018 coupon by the end of today, that 30 day “grace” period will have ended.  The $27.6 million payment was originally due on October 10.   I have been hitting refresh on the feeds all day to see if any announcement comes that it has been paid but the only thing that the Venezuela Office of National Credit keeps tweeting is to come to Caracas on Monday to talk about your bonds.  EDC (or Elecar as it is shortened on the Bloomberg terminal) becomes the first to fall, but it does not cause direct cross-default with either Venezuela or PDVSA (but we have some theories as to how), so it was always the weakest link.  In addition, Venezuela was going to have to pay its $650 million maturity in 6 months.  Under the ticker ELDAY, Electricidad de Caracas used to trade on the US stock markets as an ADR (American Depositary Receipt) until Chavez nationalized it.

With all that happening and said, we saw a bounce in the afternoon as buyers continued heavy accumulation in positions in certain bonds, with the highest coupon PDVSA 12.75% of 2022 being a favorite.  This continues a trend we have been seeing this week and it is especially unusual because its sister Venezuela bond with a 12.75% coupon that also matures in 2022 is trading at a price under 24 while the PDVSA 12.75% of 2022 is pushing toward 30.

We have some thoughts on reasons for this divergence and we are happy to discuss.

One final thing, we can confirm that the Principal payment (not the interest) on the matured PDVSA 8.5% of November 2, 2017 has arrived via DTC this afternoon.  Maduro had said they were paying both the principal and coupon last Thursday, as had Tareck El Aissami.  We believe that the payment is too late to stop the triggering of the CDS (Credit Default Swaps, insurance contracts), but we will know that for sure tomorrow afternoon.  The ISDA (International Swaps and Derivatives Association) Determinations Committee is meeting Friday at 11 to decide if a “failure to pay event” has occurred.  To avoid that determination, the money would have to have been delivered within three business days of November 2, so today’s arrival will be too late, but will never-the-less warm the cochleae of bondholders’ hearts.

In the meantime, here are the markets the desk is making as we head into coupon whack-a-mole.

Security

B Px

A Px

B YTC

A YTC

B Spd

A Spd

Fitch

Moody

S&P

Amt

Out

VENZ   13⅝  18

35.00

39.00

228.958

/

199.485

22733

/

19786

C

Caa3

CC /*-

752.811MM

VENZ   7     18

31.00

34.00

166.222

/

150.037

16459

/

14841

C

Caa3

CC /*-

1MMM

VENZ   7¾   19

25.00

25.50

107.279

/

105.506

10565

/

10388

C

Caa3

CC /*-

2.496MMM

VENZ   6     20

22.00

22.50

72.322

/

71.116

7058

/

6938

C

Caa3

CC /*-

1.5MMM

VENZ   12¾  22

23.25

23.75

80.209

/

78.864

7821

/

7686

C

Caa3

CC /*-

3MMM

VENZ   9     23

22.00

23.00

55.328

/

53.475

5332

/

5147

C

Caa3

CC /*-

2MMM

VENZ   8¼   24

22.00

23.00

46.904

/

45.314

4456

/

4297

C

Caa3

CC /*-

2.496MMM

VENZ   7.65  25

21.75

22.25

43.819

/

43.056

4148

/

4072

C

Caa3

CC /*-

1.6MMM

VENZ   11¾  26

23.25

23.75

53.024

/

52.035

5068

/

4970

C

Caa3

CC /*-

3MMM

VENZ   9¼   27

24.00

24.75

41.643

/

40.564

3930

/

3822

C

Caa3

CC /*-

4MMM

VENZ   9¼   28

22.00

22.75

44.403

/

43.117

4206

/

4078

C

Caa3

CC /*-

2MMM

VENZ   11.95 31

21.75

22.25

54.929

/

53.751

5259

/

5141

C

Caa3

CC /*-

4.2MMM

VENZ   9⅜   34

21.50

22.00

43.663

/

42.706

4086

/

3990

C

Caa3

CC /*-

1.5MMM

VENZ   7     38

20.75

21.25

33.875

/

33.105

3107

/

3030

C

Caa3

CC /*-

1.25MMM

PDVSA  8½   20

74.25

74.75

26.877

/

26.431

2525

/

2480

C

Ca

CC /*-

2.526MMM

PDVSA  9     21

25.00

25.50

79.371

/

78.057

7737

/

7605

C

N.A.

CC /*-

2.394MMM

PDVSA  12¾  22

29.00

29.75

74.114

/

72.490

7211

/

7075

C

N.A.

N.A.

3MMM

PDVSA  6     24

21.50

22.00

47.486

/

46.686

4515

/

4435

C

N.A.

CC /*-

5MMM

PDVSA  6     26

21.25

21.75

37.927

/

37.269

3559

/

3493

C

N.A.

CC /*-

4.5MMM

PDVSA  5⅜   27

24.75

25.25

29.112

/

28.666

2677

/

2633

C

N.A.

CC /*-

3MMM

PDVSA  9¾   35

23.75

24.75

41.317

/

39.698

3851

/

3689

C

Ca

N.A.

3MMM

PDVSA  5½   37

24.75

25.25

23.210

/

22.799

2041

/

2000

C

N.A.

CC /*-

1.5MMM

——

ELECAR 8½   18

19.00

22.00

1045.885

/

875.890

104426

/

87426

C

N.A.

CC

650MM

Russ Dallen | Managing Partner
Caracas (58) (212) 335-1906
Miami (305) 735-8280
New York (917) 499-8346
London (44) (207) 993-4557
RMDallen@CaracasCapital.com

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