The Time Has Come: Venezuela May Be In Default In Under 48 Hours

This past weekend, Venezuela failed to make $237 million in bond coupon payment, blaming "technical glitches" when in reality it simply did not have the money (or wish to part with it). Adding the $349 million in unpaid bond interest accumulated over the past month as of last Friday, that brings Caracas' unpaid bills to $586 million this month, just days before the nation must make a critical principal payment. And, as BofA sovereign debt analyst Jane Brauer writes, while the bank's base case assumption is that Venezuela will make its debt service payments this year, "the probability of a short term default has increased substantially with coupon delays" and it could come as soon as this Friday, when an $842 million PDVSA principal plus interest payment is due, and which unlike typical bond payments does not have a 30 day grace period but instead is followed by a second $1.1 billion PDVSA coupon on Nov 2, also without a 30 day grace period.

As Brauer writes, Venezuela has been in as similar situation of payment uncertainty in the recent past, with bond prices plummeting right before a big payment. For example, just before a big principal payment was due in April 2017 Venezuela received a $1bn loan from Russia just one week before the due date. At that time Ven 27s dropped 16% in a month (from $52 to $45) and recovered completely within a month.  Ven 27 has fallen to $35, as Venezuela has demonstrated that it will be a challenge to make all payments on time.  The difference between now and April is that coupon payment delays then came after, not before the payment.

Meanwhile, Venezuela has managed to redefine the concept of payment "on time" which now means "by the end of the grace period"

As we keep track of missed payments, the 5 missed payments, so far totaling $350mn all have a 30 day grace period, as did the $237mn payments over the weekend.

The concern is that the principal payments coming up have:

  • No grace period in the bond indenture for an event of default
  • Three business day grace period before triggering CDS

The concerning principal due dates are coming up, the first of which is this coming Friday, which means in less than 48 hours Venezuela could be in default unless it can find $842 million:

  • Friday, Oct 27 PDVSA 2020 $842mn
  • Thursday Nov 2 PDVSA 17N $1,121mn

The collateral against the first bond is PDVSA's Houston-based refining and retail subsidiary, and in just a few hours, the bondholders may be the (un)happy new ownders of said subsidiary.

"This weekend, there's either going to be a lot of bond holders and traders drinking champagne, or there's going to be a lot of stressed fund managers," said Russ Dallen, managing partner at Caracas Capital Markets

And to help everyone involved, here are some key tables, courtesy of BofA:

  1. Table 1. Ordered by due dates, missed payments and payments due today for Venezuela sovereign and wholly-owned quasi sovereign issuers.
  2. Table 2. Sorted by grace period end dates for missed payments and those due today
  3. Table 3. Debt service due dates for the next 9 months
  4. Table 4. Bond Attributes and face needed to block CACs

Table 1

Table 2

Table 3

Table 4

Comments

SoDamnMad El Oregonian Thu, 10/26/2017 - 03:21 Permalink

"MADuro" will just transfer much of Venezuala's oil fields to Chinese ownership in exchange for yuan-bucks and pay the bondholders.  The people of Venezuala will no nothing of this (assuming it already hasn't been sold off).  Much of this money will get transfered out to some place far away from South America when he decides to bolt the country.

In reply to by El Oregonian

BlindMonkey Volkodav Wed, 10/25/2017 - 21:56 Permalink

I was in the airport lounge in Kingston this afternoon and there were some Brits waiting to go back. CNN was on and they were going to interview Adam Schiff.  I told them that we like to play the CNN drinking game when they interview a Democrat congressman. It goes like this: take a swig everything they say "russia".  They laughed until the interview was going on.  Schiff danced to my theme like he was a creation of Geppetto bleating "russia" at an estimated pace of 3-4 times a minute. 

In reply to by Volkodav

nmewn adolphz Wed, 10/25/2017 - 21:09 Permalink

Ok, so you can't spell ignorant (lol) while trying to portray "deep woods rednecks" as "ignorent"...I get all that left coast false superiority complex nonsense, really I do. Its inbred to you.So, like American lenders are actually stealing their toilet paper from them while the Russian lenders are giving it to them for Faaarrreee! so here, I'm gonna frontcha one sheet of toilet paper..."PDVSA agreed in the catch-up plan to compensate Rosneft for the delayed cargoes, since the oil is being sent in lieu of payment for loans.Venezuela’s Oil Minister Nelson Martinez at a forum in St Petersburg in June said Rosneft would receive some 70,000 barrels per day (bpd) as payment for a $1.5 billion loan extended to PDVSA in 2016. He did not disclose the reason for the supply agreement."...I do expect compensation at some point in the future, at an hour of my choosing, per the contract of you being a conceited dumbass that I need to wipe my ass with ;-)https://www.reuters.com/article/us-venezuela-usa-citgo-pete/exclusive-v…

In reply to by adolphz

bshirley1968 redmudhooch Wed, 10/25/2017 - 21:00 Permalink

Yep.  Socialism is just another form of debt.......financial dependency on someone else's money.Wallstreet and international banks of the west has put the whole world on socialism.  Now they are pulling the plug on the ones they don't like.  Russia and Iran have purged their wall street bankster debt......now it's Venezuela's turn........rest of the world should follow suit and send some bankers to the poor house.

In reply to by redmudhooch

Antifaschistische bshirley1968 Wed, 10/25/2017 - 22:02 Permalink

I think everyone on ZH gets it.  Neither Socialism nor Capitalism nor anything inbetween necessitates borrowing train loads of money.Central Banking Money Counterfeiting Debt becomes the root of economic evil in our day.  And they're more than happy to see us arguing over democracy vs whatever vs whatever....as long as no one quesitons the Federal Reserve.

In reply to by bshirley1968

RedBaron616 HoyeruNew Thu, 10/26/2017 - 07:15 Permalink

The problem is not that the price of oil fell. The problem is that Maduro kept spending as if the price of oil was still high.A good analogy would be having a well-paying job, losing it, and getting a job that pays 1/3 to 1/2 less than the better job. Nonetheless, you keep up your old lifestyle by borrowing and credit cards. We all know what happens and this is where Maduro is at right now. He refused to acknowledge reality but he will have to face it, one day or another. The longer he puts off the day of reckoning, the worse things get. Just like wages, the price of oil isn't the problem. It is a problem when one spends beyond their means, be that a person or country (or dictator).

In reply to by HoyeruNew

adolphz Wed, 10/25/2017 - 20:39 Permalink

Americans be careful.   Think this is the top of selling that could trigger American stocks down. SHEP wave was alluding to this in the coming signals we should be ready.  So far Shepwave is only analysis getting markets right.

jmack adolphz Wed, 10/25/2017 - 20:52 Permalink

 Nothing sells technical analysis like alluding to fundamentals....             Hey!  if North korea fires an emp over silicon valley during a waxing crescent, then the wave 4, C (cap sensitive) impulse move  could be a double impulse move resetting the pattern into  the dreaded arthritic, double inverse, but bi-axially convex Butterfly !!!!!

In reply to by adolphz

peddling-fiction Wed, 10/25/2017 - 20:41 Permalink

I get it now.TPTB are waiting for Venezuela to fall before the oil prices hit 1,330 Yuan  due to "unforeseen" wars.If VE falls, be certain that it will snowball after.

nmewn Wed, 10/25/2017 - 20:41 Permalink

A "technical glitch"?...lol.So like the grand opening of the ObamaCare website then. Hell, they'll have that fixed in no time flat!I gotta say, I was so excited waiting for it to be fixed, I goose bumps all over my body in anticipation! ;-)