The news the Venezuela is actually defaulting on its electric company bonds is hardly a surprise. Yet 1 year credit default swaps on Venezuela and their energy company PDVSA skyrocketed!
(Bloomberg) — Venezuela’s state electricity company was declared in default by Wilmington Trust, the trustee for the company’s bonds.
Electricidad de Caracas owed investors $27.6 million in interest payments on the notes due in April of next year. Its 30-day grace period expired on Thursday.
The $650 million of bonds had fallen to an all-time low of 23 cents on the dollar, showing that investors perceived them as the riskiest notes maturing during the next year in the world’s riskiest nation. While a default by the state oil company Petroleos de Venezuela, and possibly even the sovereign, could lead creditors to try to lay claim to the crude producer’s assets, Elecar, which PDVSA bought a decade ago, has nothing for overseas investors to seize.
“The Issuer’s failure to pay the overdue interest on the Notes on or before
November 9, 2017 constitutes an Event of Default under Section 5.1(ii) of the Indenture,” Wilmington Trust wrote in the letter to bondholders.
Some traders had long suspected that the bond could be a candidate for selective default because it contains no cross default clauses with PDVSA or sovereign notes. While bondholders may try to establish an “alter-ego” argument, that would most certainly be a lengthy legal battle.
The reaction in the CDS market?
Hey, at least Venezuelan oil prices are rising!