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PDVSA Credit default protection to soar, Lehman Brothers says
By Guillermo Parra-Bernal
Bloomberg
CARACAS
Petroleumworld.com 04 27 07Lehman Brothers Inc. predicts the cost of default insurance on state-run Petroleos de Venezuela SA bonds will soar as President Hugo Chavez's takeover of four oil joint-venture projects threatens to saddle the company with defaulted debt.
Chavez has said he will take over the heavy-oil ventures from companies including Exxon Mobil Corp. and Total SA by May 1 and turn control over to Petroleos de Venezuela, known as PDVSA. That change in ownership structure may prompt holders of the projects' bonds to declare default, which could trigger payment on PDVSA credit default swaps, said Lehman economists Joe Kogan and Andres Pardo said.
``Depending on what bondholders do, there are scenarios under which it becomes PDVSA debt or causes credit default swaps to trigger,'' Kogan said in a phone interview from New York. ``It's very hard to know how creditors will respond to this, but clearly this expropriation is a default because it violates a whole number of the covenants'' of the joint-venture bonds.
The price of buying credit protection on $10 million of PDVSA 10-year bonds may rise to as much as $133,000 more than protection on similar-maturity Venezuelan government swaps, Kogan and Pardo said in a report. That spread was $33,000 on April 24, they said.
The price of Venezuelan government's 10-year credit-default swap, was $236,000 today, according to Lehman.
Credit-default swaps are financial instruments based on bonds and loans that are used to speculate on the ability of countries or companies to repay debt. An in price suggests deterioration in credit quality.
To contact the reporter on this story: Guillermo Parra-Bernal in Sao Paulo at gparra@bloomberg.net
Bloomberg 26 04 07
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