Venezuela, PDVSA CDS Triggered: ISDA Says Credit Event Has Occured

In a long overdue, and not exactly surprising decision, moments ago the ISDA Determination Committee decided, after punting for three days in a row, that a Failure to Pay Credit Event has occured with respect to both the Bolivarian Republic of Venezuela as well as Petroleos de Venezuela, S.A.

Specifically, in today's determination, in response to the question whether a "Failure to Pay Credit Event occurred with respect to Petroleos de Venezuela, S.A.?" ISDA said that the Determinations Committee voted 15 to 0 that a failure to pay credit event had occurred with respect to PDVSA.

ISDA said the DC also voted 15 to 0 that date of credit event was Nov. 13 and that the potential failure to pay occurred on Oct. 12. ISDA also announced that the DC agreed to reconvene Nov. 20 to continue talks regarding the CDS auction, now that the Credit Default Swaps have been triggered.

Over the past week, all three rating agencies, with Fitch Ratings most recently, declared PDVSA in default, citing the state oil company’s repeated payment delays. The oil company failed to pay yet another $80 million in interest that was due in mid-October on bonds maturing in 2027, and whose buffer period expired over the weekend. Venezuela was declared in default by S&P Global ratings for a similar issue. According to Bloomberg, Fitch said that it expects PDVSA’s creditors to recover as little as 31 percent on their investment.

The panel will now meet next week to discuss whether to hold an auction to set the rate at which the CDS will pay out. When credit swaps are triggered, buyers of the contracts have their losses covered by the counterparties that sold them the insurance-like derivatives.

As recently as last month, traders had bought a net $250 million of default protection through the swaps market, according to the ISDA. Of course, with the PDVSA CDS already trading at a price which implied 100% certainty of default, none of this will be a surprise.

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And moments after declaring PDVSA CDS triggered by a failure to pay event, the ISDA Americas DC also found that an identical Failure to Pay Credit Event had occurred with respect to Bolivarian Republic of Venezuela.  The Determinations Committee voted 15 to 0 that a failure to pay credit event had occurred with respect to Venezuela, and added that the Determinations Committee voted 15 to 0 to reconvene Nov. 20 to continue talks on an auction.

Just like with PDVSA, the CDS triggering has been fully priced in.

The only question now is when the CDS auction will be, whether it will proceed smoothly and who is revealed as the biggest seller of Venezuela and PDVSA CDS.


any_mouse hedgeless_horseman Thu, 11/16/2017 - 17:36 Permalink

Isn't every nation operating on debt (OPM) now?

The only GDP expansion is through debt expansion.

Ponzis built on Ponzis.

Would be nice if Central Banking had the attention of the Manmade Global Warmers and it was settled science that Central Banking is a threat to the Planet.

What if Yellowstone blows? Panic mode.

Ask instead what happens when the Debt Bubble blows? Crickets.

In reply to by hedgeless_horseman

natxlaw guaposoyyo Thu, 11/16/2017 - 16:54 Permalink

Don's on me that Maduro would have been in a better position had he used   the non-acceptance of US dollars as a bargaining chip to get China and Russia to write down their debt.Oh well I'm certain they will give him as good a deal as they would have. After all, the last thing they want is regime change.

In reply to by guaposoyyo

buzzsaw99 Thu, 11/16/2017 - 16:54 Permalink

the only time cds pays off is when the squid buys them.  this whole thing reeks of squid six ways to sunday.  a credit event does not officially happen unless they stand to profit from it.

buzzsaw99 cossack55 Thu, 11/16/2017 - 17:05 Permalink

hell it doesn't even matter if the squid buys cds from firms that go bankrupt.  remember blankfein testimony in front of congress in 2009?  He said something like:  "well, if the gubbermint doesn't give us the ten billion dollars emergency cash then the insurance would pay us $10B..." (the bank holding company, barf)  implying that all the firms they bought cds from weren't fucking insolvent too the lying rat bastard.  Never mind that goldman illegally bought venezuela bonds in the first place, and that for pennies on the dollar, which the imf would have collected full value if the fucking thing hadn't gone tits up.

In reply to by cossack55

James T. Kirk Rainman Thu, 11/16/2017 - 19:22 Permalink

That is so old school. Here are the new rules:

No one is naked when the tide goes out.

Instead of just continually printing money, continually invent new kinds of financial instruments every few weeks. If no one can figure out and keep abreast of the how the new financial instruments actually work (ie: no one can figure out how they simply keep re-defining debt, thus continually putting new clothes on the emperor), no one panics, market volatility goes to zero, and life goes on normally. Until it doesn’t. When trust in fiat money breaks, it will literally take a supernatural event to restore order to the earth. A not-very-nice supernatural event.

In reply to by Rainman

auricle Thu, 11/16/2017 - 17:00 Permalink

This should cause some gravitational waves in the markets. Some insurers are under deep water over this. Don't think for a minute that vertical line has reached its peak. money printing coming.Question: The Fed says they want to draw down their balance sheet and the easiest part of that is the money they printed but are holding on reserve for the banks. What if a credit crisis hits and that money is then used by those banks before it can be repo'd? How then will the Fed draw down their balance sheet? Much of the defaulted loans in Venezuela are US derived? How much of that is also insured through CDS from US reinsurers like AIG? I smell smoke!

Disgruntled Goat auricle Thu, 11/16/2017 - 17:22 Permalink

Reinsurers and traditional insurance firms are generally not sellers of CDS. Banks and other firms with Venezuelan bond exposure might purchase CDS to hedge their position. Sellers of CDS, who must pay upon default,  are financial firms speculating that Venezuela will be able to meet their obligations. 

In reply to by auricle

serotonindumptruck Thu, 11/16/2017 - 17:02 Permalink

This is a weak attempt at an end-around by Western governments.Vlad Putin beat them to the punch with his offer of debt relief.The 3 billion loan guarantee from Russia is most likely only prolonging the inevitable, but at least Russia has a vested interest in Venezuela's future.Now, about that Russian naval base in Venezuela...

dirty fingernails Thu, 11/16/2017 - 17:03 Permalink

Wouldn't it be hilarious if Venezuela's CDS started the market crash? The US had producers pump to drop the price of oil in order to hurt places like Russia (which has backfired in spectacular DC fashion), and causes a market crash?