In the beginning of 2020 Bloomberg published an article outlining that provisions incorporated in the prospectuses of the Venezuela sovereign bonds issued after 2005 could reduce statute of limitations to recover unpaid interest under those bonds to just 3 years.
The article caused a great deal of controversy among the creditors of the Republic and various legal experts involved in the case. Some claimed that this clause was intended to establish a limitations period only if the Fiscal Agent is holding funds from the issuer that it has not paid out to the bondholders. In contrast, others emphasised that it could allow the government to avoid paying interest to any creditor after 3 years if such creditor did not take appropriate actions against the issuer.
The clause reads as follow:
Claims in respect of principal and interest will become void unless presentation for payment is made within a period of ten years in the case of principal and three years in the case of interest from the Relevant Date, to the extent permitted by applicable law.
“Relevant Date” means whichever is the later of (i) the date on which any such payment first becomes due and (ii) if the full amount payable has not been received by the Fiscal Agent on or prior to such due date, the date on which, the full amount having been so received, notice to that effect shall have been given to the Bondholders.
With the third-year anniversary of Venezuela’s default fast approaching in November 2020, investors face the risk of losing their legal entitlement to accrued interest on bonds, whose prescription is described with unclear language in a vague clause buried in the bond indenture. Below the table with the list of the bonds with imminent prescription deadline:
|Credit||Type / ISIN||Capital Prescriptions (in years)||Interests Prescription (in years)||Interest Prescription Deadline|
|VENZ 7 3/4 10/13/19||USP97475AN08||10||3||13/10/2020|
|VENZ 8 1/4 10/13/24||USP97475AP55||10||3||13/10/2020|
|VENZ 7.65 04/21/25||XS0217249126||10||3||21/10/2020|
|VENZ 11 3/4 10/21/26||USP17625AE71||10||3||21/10/2020|
|VENZ 9 05/07/23||USP17625AA59||10||3||7/11/2020|
|VENZ 9 1/4 05/07/28||USP17625AB33||10||3||7/11/2020|
|VENZ 7 12/01/18||USP97475AD26||10||3||1/12/2020|
|VENZ 6 12/09/20||USP97475AG56||10||3||9/12/2020|
|VENZ 6 1/2 12/29/36||USP97475AQ39||10||3||29/12/2020|
Under the leadership of IlliquidX, a group of like-minded investors who hold claims against the Republic of Venezuela, PDVSA (Petroleos de Venezuela S.A., the state-owned oil company) and ELECAR (the electricity utility company of Caracas) are seeking an amicable understanding with the authorities of Venezuela regarding the protection of their contractual rights on past due obligations, which are estimated to total $60 billion.
The parties intend to reach out immediately to the authorities in order to secure a mutually convenient resolution of the matter ahead of the impending deadline. However, given the added layer of complexity due to the existence of two administrations (Guaido v. Maduro) in Venezuela, the group of investors has also appointed Reynolds Porter Chamberlain LLP (RPC), a leading UK law firm with vast experience in sovereign debt matters, and Prof. Rodrigo Olivares-Caminal, an international sovereign debt consultant expert who is currently heading the Cuba ad-hoc creditor committee, to facilitate the conversations and supervise further developments.