Episode summary
Here's What Could Happen to Venezuela's Messy $170 Billion of Debt | Odd Lots
Odd Lots
· · 35 min · Hosts: Tracy Alloway, Joe Weisenthal · Guests: Lee Buchheit
Summary
Venezuela’s roughly $150 billion to $170 billion debt pile is split between Republic of Venezuela and PDVSA bonds, plus a wider set of unpaid trade creditors, arbitration awards and blocked deposits. Lee Buchheit says the bond market has already priced in a possible restructuring, with some Venezuelan and PDVSA paper rising from single digits to more than 30 cents on the dollar, but any workout will be far messier than a standard bond deal because the creditor base is so diverse.
Buchheit argues that the “odious debt” idea is emotionally appealing but legally dangerous. International law generally says governments inherit their predecessors’ debts, and he says drawing a line around which regimes are odious would quickly become arbitrary. He contrasts Venezuela with Iraq, where the U.S.-led postwar occupation created a unique political setting that allowed extraordinary debt relief; he does not expect the same template here.
For Venezuela, he expects sanctions relief to be the real gatekeeper to any restructuring, with the U.S. likely to press for oil investment, claims payment, and some benefit to Venezuelan citizens before legacy bondholders get much. He says an oil-linked instrument, similar to Brady-era oil warrants, is one plausible tool, but most recoveries would likely be deferred for years.
Key takeaways
- Lee Buchheit says Venezuela’s debt workout will involve not just bonds but trade claims, arbitration awards and blocked deposits, making it far more complex than a typical sovereign restructuring.
- Buchheit says the odious debt doctrine is too vague to serve as a reliable legal basis for wiping out Venezuelan obligations.
- He expects U.S. sanctions to be the main obstacle to negotiations, because restructuring cannot really begin until sanctions are relaxed.
- Buchheit says any deal will likely prioritize oil company investment and some improvement in living standards before legacy bondholders receive much.
- He thinks an oil-linked value recovery instrument is a plausible part of the final package, echoing Brady-era restructurings.
Notable quotes
“In total, probably now the Venezuelan debt is someplace between 150 and 170 billion. Not all of that is bombs”
“This is going to be a much more diverse creditor group”
“nothing in law, but in convention, debts extended by the multilateral institutions, the IMF, the World Bank, the Interamerican Development Bank, that sort of thing are treated as preferred creditors”
“My view at the time was that that was ill- advised. That the doctrine of odius debt is sufficiently gauzy that it is not something that the international community could have endorsed”
“What I would expect therefore is that the bond holders will ask for what is generically called a value recovery instrument”
How the episode opens
Bloomberg Audio Studios podcasts, radio, news. — Hello and welcome to another episode of the OddLotss podcast. I'm Tracy Aloway — And I'm Joe Weisenthal. — Joe Venezuela. — Venezuela week. — So we've done the oil market. Yeah, we got to do the debt market.
We got to do the debt market. I don't know anything about this stuff, so we got to do it. — One of the reasons that I really like covering the debt market, bonds, is because I think we're used to thinking of bonds as contracts.
Yeah. — But I always like to think of them more as stories. — Yeah. Yeah. — So, they're full of all these narratives and embedded values and history. And there's actually a great quote from Margaret Atwood. She wrote this whole book called Payback on Debt. and she describes it as a story or a memory of who owes what and why.
Yeah. — And of course, if you're talking about a story or a narrative, those can change over time, right?
Absolutely. I mean, so one thing I know is that just since Saturday morning and the early trading, I think the existing defaulted Venezuelan debt that's out there, I think it's rallied. I think it's gone up.
Oh, yeah. But I don't understand like, you know, you're trying to get the economy going again. You're going to make everybody pay for this money that was borrowed by someone who the international community regards to be legitimate as a dictator.
If anything, shouldn't the creditors that facilitated his ongoing rise, shouldn't they have to pay? Not only should they not get paid back, shouldn't they pay the people of Venezuela extra for having subsidized someone that is widely regarded to be a criminal?
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- venezuelan sovereign debt
- debt restructuring
- defaulted bond investors
- sovereign workout challenges
- authoritarian regime debt questions
Companies and tickers mentioned
- Venezuela
- Santander
- BBVA
- Deutsche
- Iraq
- Greece
- Argentina
- UK
Watch the episode
Watch “Here's What Could Happen to Venezuela's Messy $170 Billion of Debt | Odd Lots” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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