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Venezuela money at New York Fed may be key to PDVSA bond payment

The Wall Street Journal

Federal Reserve Bank of New York

- Venezuela's opposition-led Congress approved debt payment
- Payment chain runs through Delaware, New York and Luxembourg

By Ben Bartenstein / Bloomberg

Petroleumworld 05 09 2019

If Venezuela's state oil giant delivers a crucial payment on bonds backed by a stake in U.S. refiner Citgo this month, it could be thanks to an account at the New York Fed.

The Manhattan branch of the Federal Reserve is one of several U.S. financial institutions housing funds accessible to National Assembly President Juan Guaido, whose allies formed an ad hoc board to administer Petroleos de Venezuela . Regardless of where PDVSA draws the funds for a $71 million interest payment on its 2020 bonds, the route to investors will be circuitous.

The money must get delivered to Wilmington-based Delaware Trust Company, which took over as the principal paying agent on the debt. Then it must be sent over to Citibank and JPMorgan Chase Bank, which act as depositories for Clearstream Banking in Luxembourg and Euroclear in Brussels respectively, before getting shipped to bondholders, according to company filings.

Typically, the twists and turns of how a debt disbursement finds its way to investors are of little consequence. Yet this is no ordinary payment. It would mark a first for Guaido, whom the U.S. and more than 50 nations recognize as Venezuela's rightful head of state, and it would help the country avoid the unfortunate distinction of defaulting on every single one of its active bonds.

The notes trade at about 90 cents on the dollar, compared with around 30 cents for the country's defaulted bonds. Still, prices for the Citgo-backed debt have dropped from a high of 95 cents in mid-January amid growing concern the payment won't be made.

The opposition-led National Assembly formally approved the PDVSA debt disbursement on Tuesday, a week after Guaido led a failed uprising against autocratic leader Nicolas Maduro. While Maduro maintains control of much of the government's operations, the Trump administration has blocked him from accessing Venezuela's accounts in the U.S., handing the keys over to the 35-year-old opposition leader.

PDVSA didn't respond to requests for comment. JPMorgan Chase & Co., Citigroup Inc., Delaware Trust Company, the New York Fed, Euroclear and Clearstream declined to comment.

PDVSA's bond payment was technically due April 29, yet the contract includes a 30-day grace period before the securities would be declared in default. That gives Guaido and his team several more weeks to complete the transfer.

If the payment goes haywire, the phones at GLAS Americas LLC's office on Park Avenue in Manhattan will no doubt be busy. GLAS is the collateral agent, responsible for holding the stock in Citgo that creditors could attempt to seize in the event of a default.


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Story by Ben Bartenstein from Bloomberg. 05 08 2019


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