Bond people are still in a state of collective shock over Eulogio del Pino’s press release extending the PDVSA Swap deadline last night. Using language that’s just not usual in this world, DelPi good as threatened to default if bondholders don’t come forward to swap.

“If the exchange offers are not successful, it could be difficult for the company to make scheduled payments on its existing debt,” is how PDVSA put it in its statement. Gangster style.

Two interpretations spring to mind. Del Pino is either bluffing or he is outright desperate.

Under the first interpretation, del Pino keeps extending the deadline to keep working large, undecided bondholders, trying to persuade them to opt-in to the swap. PDVSA is pledging 50.1% of CITGO no matter what % of bondholders buy-in, so del Pino is shmoozing with the big fish behind closed doors to max out bondholder participation and squeeze the CITGO lemon till its dry. The threats and insinuations in PDVSA’s press releases are bluffs to scare the big bondholders into buying in, or at least selling their bonds so that new bondholders can buy-in.

Either way, he’s decided to make things exciting. PDVSA is on the hook for $2 billion on November 2nd, when the 2017 8.5% bond in the swap amortizes.

The second interpretation is that bondholder buy-in is abysmal, and that del Pino’s extensions and threats are nothing but #TropicalMierda desperation. Del Pino is looking 12 months down the line, seeing that the numbers add up to capital D, and is throwing one last hail mary, one last huida hacia adelante, to see if the market can save him.

Either way, he’s decided to make things exciting. PDVSA is on the hook for $2 billion on November 2nd, when the 2017 8.5% bond in the swap amortizes. You know, just a couple of days after we line up to sign the Recall petition, as the CNE is precog announcing we didn’t make 20% in every single state, and shit majorly hits the fan.


Stepping back, though, what we saw yesterday is a remarkable departure. For the last two years, everyone from Barclays to Bank of America to pretty much every other analyst that follows the Venezuelan economy has talked about the government’s “willingness to pay” its external debt. It’s an ubiquitous phrase in news about Venezuelan debt.  It’s even in today’s Reuters write-up.

Almost everybody that ever went to a meeting with Chavista policymakers came out saying something like “willingness to pay is very high”. But PDVSA’s communique yesterday put a lid on that.

“We’re willing to pay” they said, “but only if you’re willing to play”.


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  1. I just listened to PDVSA’s Conference Call, in which Del Pino did not participate because “he was busy with Maduro” and listened to a moron called Rafael Rodriguez, who does not even speak decent english giving no answer after no answer to many analysts, including Ricardo freaking Hausmann…

    In short, nothing new, no news, no answers… everybody, including me, lost their precious time.

    The best part was when Rafael Rodriguez said that he could only take one last question because “he had a very important meeting that he needed to attend”. Didn’t PDVSA say that they wanted top do the CC? I mean, could they seem more unprofessional and tirapiedras that this?

    The only interesting thing out of the call is that he said that PDVSA will NOT increase the ratio, they cant and the country cant. I betcha $100 right now that they will!

    • The problem really isn’t the ratio, it’s the heavily-encumbered/worthless collateral–CITGO/Regime’s ability to pay. What good is more paper, if you end up losing a large bit of your capital anyway?

        • Any increase in return practically possible vs. the large possibility of default with questionable collateral would probably not be consequential, but those managing other peoples’ money have made mistakes before….

  2. The issue many financial types don’t seem to be grasping well is that as Maduro et al are clearly mounting a dictatorship. This was encouraged by Obama’s policy towards Cuba. But the reaction to the coup, which I believe will likely include moves to make National Assembly meetings impossible to hold, will be more than just street. In getting a very grim readout that we will see sporadic high level violence, and also a significant amount of low performance in the pdvsa ranks. I don’t know if they’ll go for sabotage and blow something up, but it’s very likely nothing will get done right. And this will make production drop faster.

  3. I wonder where Eulogio is is planning to retire, with his entire family: Mediterranean coast, Dominican Republic mansions, Uruguay (too cold sometimes), or Paris.

    As most Venezuelans still say: “oh, mi querido comandante Chavez”..

  4. An interesting psychological note here is that up till now, for nearly 20 years, the Chavistas have done most everything on their own terms, blowing off all “imperialist meddlers” with a swish of the hand or a waving fist. Now they cannot. They HAVE to bend, give, and compromise. But it may be that they are constitutionally incapable of any change, any real negotiations. Implosion seems a real possibility. Where they gonna get 2 billion anyhow?

  5. Frankly, it’s pretty amazing so few investors accepted the swap, considering the risk of default. I can picture bondholders saying “I will not be blackmailed by the Venezuelan government”.

    • The gamble is that the Govt. now can pay a $bill or few, even if it means running down its already meager intl. reserves, vs. the problems/risks of a default, thus kicking the can a little longer down the road. For bondholders due to be paid soon, 2020 is a real crap shoot with poor odds, given this Regime’s track record, and the perilous oil market going forward, particularly in the face of an overdue financial markets/resulting further commodities markets correction.

      • Some have apparently concluded the regime is trying to make a mistake:

        In the broader context of the backyard of buried morocotas, not to distort a very good picture painted in the article, but just to express what went through my mind: the shop owner is afraid he will no longer have those if they are dug up, and does not realize that he can convert a portion of them into useful and productive assets, and still have most of them left, and be much better off by digging them up. In context of inviting experienced top-tier managers, he doesn’t want to pay the Caterpillar operator for his work (shoots him, in fact), and he doesn’t want to pay the coin dealer his commission. So he tries to borrow his way out of debt.

        In context of the real world, or at least what I can see of it, PDVSA is correct in not increasing the conversion ratio. There is a finite amount of money available now, with which to liquidate the debt and interest, and there will be a finite amount of money available in the future, to use for the same purposes. The amount of money available is the important thing, and you cannot multiply that by multiplying the number of ways you divide it up. The flow of money available is the same, whether divided by 10 or by 100, and bondholders should be focused on that flow of money, not on the number of bonds. They are asking for more reward potential, more leverage for themselves, when the potential of default is in the air. In a way, that’s sort of silly, but maybe they’re discussing ways to explain (justify) their actions to their bosses and to shareholders in their funds. Or maybe they are just doing the math. I’m fairly certain they are not registered as charitable organizations, not from what I’ve heard, so there has to be some economic explanation for their continuance, their acceptance of the offered swap.

        Really, PDVSA is offering a straddle, it seems to me. The call portion of it is limited by the face value plus interest; the put portion is the realizable value of 50% of Citgo. The underlying is the price of crude and the ability to produce it. The political or country risk is the unknown, and determines the ability to produce it (the crude, the underlying).

  6. I don’t understand anything of this article. Bonds, swaps, bondholders… It all sounds chinese to me. Any good resources for total beginners to learn this sh*t?

    • Not an expert, but

      Bond – a company that requires financing can do so by making bonds saying “hey, this bond is worth X $, but in this date in the future, I’ll pay you that plus some interest”. Those bonds are then on the market (people may want to sell them or buy them for diffferent reasons); whoever has it now is the bondholder, with the right to get it paid when it is time. In this case, we are talking about PDVSA bonds, which moves us to…

      Swap – PDVSA is in not so great shape and has a lot of obligations to pay those bonds that mature – that is, come to the due date – soon. So they have been offering a swap to the people with the bonds – you give us the old bond, we give you a new one that is due for 2020 and is a bit more higher value that the one you are cashing in now.

      Basically think refinancing your debt, telling the guys you owe money to that you will give them a bit more money but later on. What PDVSA has said now amounts to “is either that or I dont have the money to actually pay you on the due date”

    • You know those shady payday loan places? You go in a borrow $200 for a week because you need to pay your power bill? Then you come in a week later and find the balance is $400 and you don’t have $400 (or even $200). So you “roll over” the debt for another week, for more interest. And it gets worse and worse.

      This is like that. It’s not supposed to be, but it is now.

      VZ’s oil company borrowed $200. It’s now Friday, the loan is due, and they don’t have the money to pay it back. So they are begging the lender to roll over the debt another week. In the end, they will end up owing even more.

      The PayDay lender is getting nervous. The debtor is hinting to the PayDay shop “Either let me wait another week, or I will declare bankruptcy”. So their promise of paying another week later, with more interest, doesn’t seem very believable.

  7. Start with definitions – simple ones, like: bond, share, stock, market, finance, investment. Then you can move to things like “swaps”. Financial people who do not really understand things themselves seem to like to make it all seem very complicated, so don’t get wrapped up in their complications.

  8. “If you owe the bank $100 that’s your problem. If you owe the bank $100 million, that’s the bank’s problem.”

    As little sympathy as I have for the Chavistas who got us into this mess, I also don’t have much sympathy for the bond holders. They knew (or should have known) that this was coming.


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