Venezuela Declared in Default by S&P After Missing Bond Payments

Nicolas-Maduro- CRYINGBy Katia Porzecanski

Venezuela, one of the world’s riskiest credits, was declared in default by S&P Global Ratings after missing two interest payments on its debt.

The nation, home to the world’s largest oil reserves, owed investors about $200 million and failed to make those payments by the end of a 30-day grace period that expired over the weekend, S&P said in a statement in which it lowered the country’s rating to SD. Plagued with payment delays and running low on cash, it’s the first time in recent years the government has exceeded the buffer period on its bonds. State oil producer Petroleos de Venezuela SA had already been said to default by Fitch Ratings and Moody’s Investors Service.

Venezuela has struggled with payment delays in recent months as U.S. sanctions imposed against the nation created hurdles in the payment chain. With reserves near a 15-year low, officials have called for a renegotiation of all the country’s global debt, and bondholders were invited to Caracas on Monday for a meeting with government officials. While no solid proposals came out of the event, government officials insisted they plan to continue to service obligations.

Moody’s has a negative outlook on its rating, “reflecting our view that the sovereign could again miss a payment on its outstanding debt obligations or advance a distressed-debt exchange operation, equivalent to default, within the next three months,” the company said.

Investors in Venezuela’s $5 billion of bonds maturing in 2019 and 2024 can organize to demand that the nation immediately pay back all they’re owed, and down the line, holders of the nation’s other bonds, which have cross-default provisions, could choose to do the same.

It’s possible investors won’t take those actions, and instead put their hopes on getting a delayed payment. Otherwise, they risk setting off what could be the start of one of the messiest debt restructurings ever — a process that’s further complicated by sanctions preventing U.S. investors from engaging with the current regime.

The International Swaps & Derivatives Association will meet Tuesday to discuss whether a week-long delay on bond payments from the state oil company will trigger default-insurance contracts on those securities.

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