Citgo-backed bond trustees thrust into Venezuela fray

Venezuela's political opposition filed a complaint today in a US federal court against the trustees of the Citgo-backed bond seeking to have the debt declared invalid and preventing bondholders from exercising their right to the collateral after a $914mn principal and interest payment was missed yesterday.

The complaint was filed in the US District Court for the Southern District of New York by Petroleos de Venezuela S.A. (PDVSA), PDVSA Petroleo S.A., and PDV Holding Inc. against MUFG Union Bank and GLAS Americas as trustees and collateral agents of the bond that matures next year.

The legal action seeks a declaration that the PdV 2020 bonds, including a 2016 swap and the Citgo collateral, are "invalid, illegal and null" and "accordingly void and unenforceable," says the complaint obtained by Argus.

The PdV 2020 issuance was born out of the 2016 swap that replaced PdV 2017 bonds, which had been close to default. It is not clear what would happen to the underlying debt associated with the original bond, should the opposition win its case.

The opposition argues that the swap was invalid because it was not approved by the National Assembly, as required by Venezuela's constitution.

The PdV 2020 bond is backed by 50.1pc of the shares in Citgo, which is a subsidiary of Venezuela's national oil company PdV. Although PdV remains in the control of Venezuelan president Nicolas Maduro, his rivals in a self-declared interim government have assumed administrative control of Citgo in the US.

Opposition leader Juan Guaido, whom the US and most Western countries recognize as Venezuela's legitimate president, named "ad hoc" administrative boards of PdV and its subsidiaries after he declared his interim presidency in January 2019. The board directors are part of a shadow government in exile.

Some institutional investors were surprised that the Guaido team would rush to court after the US Treasury issued a license on 24 October that protected Citgo from seizure for 90 days, with the aim of allowing the two sides to renegotiate the debt. PdV's ad hoc board said yesterday that talks with bondholders ended on 24 October after no "reasonable" deal could be reached.

"Unless this court grants the relief sought in this action by that time, Citgo will be lost and the Guaido government's efforts to restore democracy and the rule of law, rebuild Venezuela's economy and ameliorate the country's ongoing humanitarian crisis will suffer a devastating blow," the complaint notes.

Neither trustee nor the bondholders could be reached for comment. But an executive close to the bondholders called the lawsuit "outrageous."

The bondholders include major institutional investors including Ashmore, Blackrock, Fidelity and T. Rowe Price.