Argentina-style legal drama looms if Venezuela defaults on debt

jueves 21 de enero de 2016 17:15 GYT

By Davide Scigliuzzo

MIAMI/NEW YORK, Jan 21 (IFR) - The lack of collective action clauses on close to US$40bn of Venezuelan bonds could expose the oil exporting nation to a lengthy legal fight with holdout investors if plunging oil prices force the government to default on its debt.

With crude hovering around US$29 per barrel on Thursday, Venezuela - which has requested an emergency OPEC meeting - could have trouble satisfying its debt obligations.

Barclays said the country will have difficulty avoiding a credit event in 2016 - and that is based on the bank's forecast of US$37 oil, almost US$10 higher than current prices.

If that happens, analysts said hedge funds could look to borrow a page from Argentina's play book and try to exploit the absence of collective action clauses on some sovereign debt to block a potential restructuring and sue for full repayment.

"The fact that some bonds don't have collective action clauses is a problem," said Lee Buchheit, a partner at law firm Cleary Gottlieb who has advised sovereigns from Greece to Iraq on sovereign debt matters.

"Venezuela has more commercial connections with the US than most sovereigns do and that increases the litigation risk. They should be concerned about a debt restructuring that left behind holdouts."

Buchheit was recently hired by Argentina's new government as the country reopens negotiations with holdout investors.