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After rating agencies declared Venezuela in selective default and after a meeting with creditors on debt restructuring failed earlier this week, the International Swaps and Derivatives Association (ISDA)—a finance industry body—has voted that both Venezuela and its state oil firm PDVSA had defaulted on their debt payments.
The vote by the New York-based industry group will trigger payouts on debt default insurance on its bonds, the so-called credit default swaps (CDS) that investors use to protect against defaults.
In a unanimous 15-0 vote, the members of ISDA’s Americas Determinations Committee voted on Thursday that “a failure to pay credit event occurred with respect to Bolivarian Republic of Venezuela.”
The members of the committee—which includes Goldman Sachs, JPMorgan, Deutsche Bank, Barclays, and Credit Suisse, among others—decided to meet again on Monday, November 20, to continue discussions on how to proceed and discuss an auction that is expected to determine the amount that holders of CDS will be paid.
The committee also voted that “a failure to pay credit event had occurred” with respect to PDVSA, and a more detailed analysis will be prepared. The group will also discuss on November 20 how to proceed with CDS on Venezuela’s oil firm’s bonds.
Venezuela and PDVSA missed bond payments on October 12, and were using the 30-day grace periods on those two payments to collect cash to pay dues on October 27 and November 2, which didn’t have grace periods.
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But now the derivatives group voted that a credit event occurred on November 13, following Venezuela’s failure to make the October 12 payments within the grace periods.
Even after ISDA’s vote, investors are unlikely to rush to demand a default, a source at a large holder of Venezuelan bonds told Reuters.
“Even after the ISDA decision, it’s not the best idea for anyone to accelerate a default if there’s a chance they are going to be able to receive an amortization or interest payment any time soon,” the source told Reuters.
“As long as Venezuela and PDVSA pay, most bondholders will likely prefer to deal with the delays,” according to the source.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.