If you are a little confused about Venezuela and PDVSA and when, whether and why they are in default, don’t feel bad. That issue is confusing market makers and even the rating agency referees.


After Venezuela and PDVSA markets froze up yesterday over confusion about whether interest should be included in trades or not, this morning started with an EMTA meeting where the majority of participants agreed that bonds would trade with interest. When bonds are in default, the market norm is that they trade flat – ie without interest. This is the second time in 2 weeks that there was confusion over this issue. Because yesterday some bonds were trading with interest and some without (depending on whether they were in the grace period or not), one of the biggest firms on Wall Street and Canary Wharf — with a trader who I regard as one of the best Venezuela traders out there — traded less than $100 million face (around $30 million in real money).


Then there is ISDA, the International Swaps and Derivatives Association, that is called upon to determine whether there has been a failure to pay event on both Venezuela and PDVSA. They are stuck on the issue of exactly when Venezuela and PDVSA actually paid, because no one really knows that information — except Venezuela which keeps saying confusing and contradictory dates. Hopefully ISDA will be able to cut through the BS of Venezuela’s smoke and mirrors game this week.
Finally, even the expert referees — Standard and Poor’s, in this case — are confused. Last night S&P marked PDVSA into both Default and Selective Default, which are confusing classifications as well. But here’s the thing: they based that decision on two bonds, when only one was actually in default. According to S&P, “Venezuela-based oil and gas company PDVSA failed to make its interest payments on its 2027 and 2037 senior unsecured notes within the 30-calendar-day grace period, which expired on Nov. 13, 2017.”



The problem is that PDVSA actually — albeit weirdly — paid the $41 million on the PDVSA 2037 (which was originally due on October 12) in late October and clients started receiving the funds on October 26 and 27, so PDVSA did not toll their whole grace period on that bond. Whoops.





So, don’t worry about being confused — Venezuela and PDVSA have become the Schrodinger’s cats of the debt world.