Caracas Chronicles

[Update: As of 7:47 a.m., Reuters says its sources say PDVSA is paying.]

In a normal country, with normal institutions that communicate normally because they’re run by normal people, payment dates are drearily boring. But that’s not how Venezuela rolls. Here, bond deadlines have a peculiar kind of rhythm. It starts to build up a few weeks before and just builds and builds and builds running up to the deadline — a maelstrom of rumors and tips, stories true and false, nerves and antacids and Xanax and whiskey thrown around with abandon.

Today is one of those days. Ammortization day. A-Day.

By the end of trading, PDVSA will either have paid up the $985 million it owes to Wall Street or it won’t have. If it doesn’t, a dismal chain of events will go into motion. A three day micro-grace period attached to Credit Default Swaps starts ticking. If, by the end of that period on November 1st there’s still no payment, bondholders will be able to start a process that would allow them to accelerate payments on all other PDVSA bonds — so, payments that were supposed to be due decades from now, will have to be made on Monday.

If PDVSA is unable to pay, hot-shot Wall Street lawyers will make a bee-line to their nearest federal court to make claims on PDVSA assets — meaning every PDVSA asset vaguely within reach of a U.S. court will be up for grabs. Tankers, refineries, CITGO, investments in Europe, millions of dollars in accounts receivable, even oil cargos themselves.

Total lunacy is the only way to describe the swings in PDVSA bond prices yesterday.

Elementary logic suggests PDVSA will pay. It always has, and it has spent all year preparing for today. You know why there’s no food at the store when you go grocery shopping and how you can’t afford what’s there? That’s because PDVSA has been hoarding almost every dollar it makes from oil sales all year precisely so it can make that payment today. Having done all that, it would be total lunacy to still miss the payment today.

Then again, it’s 2017: total lunacy is the new normal.

Total lunacy is the only way to describe the swings in PDVSA bond prices yesterday, which swung all day as jittery investors tried to piece together if a payment would come or not.

Total lunacy is what Alejandro Grisanti was pointing to, with a tweet last night that will have kept more than a few bondholders awake into the wee-hours:

Venden el oro, suben RI, ni un dólar al sector privado recortan importaciones y ahora no quieren pagar!!!No dicen ni pio. Quien los entiende

— Alejandro Grisanti (@agrisanti) October 26, 2017

So, will PDVSA’s payment clear today? Will it pay only to miss the even bigger payment due next week?

I don’t know. If I did I’d be speculating in the market and making a few million dollars instead of wasting my time here. (Which incidentally is what every politically-connected finance guy in chavismo’s orbit has been doing non-stop for the last few weeks.)

What I know is that with every debt maturity, the orgy of rumors and speculation and market manipulation grows more intense. That smart, knowledgeable bond people go a little crazier each time. And that all the intense speculation about the when exists alongside a strange unanimity over the whether: everybody knows default is inevitable, nobody knows when the ax will come down.