Venezuela’s Restructuring : A Path Forward

Interim President Juan Guaidó and the National Assembly have begun the process of preparing Venezuela for the transition from a failed state to a functioning state. Among the most urgent tasks facing a new Venezuelan government will be, of course, measures to address the humanitarian crisis and securing the needed funding for these efforts without delay. A second order of concern, but one that must be addressed early on, is the treatment of Venezuela's more than $175 billion of external financial obligations, virtually all of which are in default. Building on the framework that the authors developed in 2017, this article sets forth a roadmap for a realistic and comprehensive debt restructuring process for both Petróleos de Venezuela, S.A. (“PDVSA”) and the Republic. The framework the authors sets forth has as its objectives to address all significant classes of external debt of PDVSA and the Republic; to establish a process for Venezuela and its creditors to reach decisions by negotiation and consensus; to eliminate (where possible) and to limit (where it is not) the threat posed by holdout creditors; to recapitalize PDVSA on a stand-alone basis so it can position itself for new investment and renewed access to international markets; to provide tools to recover the vast sums stolen from the State through fraudulent and criminal acts and to terminate executory contracts that contain disadvantageous terms entered into during the Maduro regime; and to reorganize the public finances of Venezuela so that its external debt (including any newly issued contingent obligations) is sustainable. Recognizing the different characteristics and challenges that each of PDVSA and the Republic face, the authors offer up a path forward that seeks to utilize both traditional and non-traditional sovereign restructuring techniques and apply them in a manner so as to maximize the prospects for a successful restructuring