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Brage Humphries
Chapel Hill, North Carolina
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I agree that the "uniformly applicable" standard would likely allow for different treatment of investors in NPV terms. However, I think that Argentina should be cautious about discriminating too heavily between groups of investors using this strategy. In this case, this would be between investors holding bonds maturing soon (who would be hurt the most in NPV terms) and those holding bonds maturing later (who would be hurt less than the former). It is not impossible to imagine a scenario where 25% or more of bondholders feel disadvantaged by an exchange and decide to hold out. While this does not make the exchange impossible, Argentina should consider this as a factor if it chooses to proceed under this single-limb approach.
CITGO is one of the few actually paying cash for Venezuelan oil. Venezuelan oil exports to other countries such as China and Russia are usually just taken as repayment for debt to these countries. The government needs this cash to operate. Without this cash, the country's economic situation would deteriorate even further.
While I agree that Venezuela has a possible legal basis for challenging its obligations under the PDVSA 2020 bond, there are some background issues that seem to have been overlooked that could play a role in determining whether CITGO would even be seized. A U.S. court may hesitate to enforce the bond because of the ongoing economic/humanitarian crisis in Venezuela and the ongoing power struggle between Maduro and Guaidó. Oil revenues account for around 99 percent of Venezuela's export earnings (https://www.opec.org/opec_web/en/about_us/171.htm). A blow to PDVSA through CITGO's seizure would crush the already struggling Venezuelan economy and only exacerbate the humanitarian crisis in the country. While the 2007 Bundesverfassungsgericht decision suggests that a country may not invoke necessity to suspend the payment of its obligations to private creditors under international law, Venezuela's dire economic situation would likely influence whether a court would be willing to enforce the seizure of CITGO in this instance (and would seem to depend on which creditors own the PDVSA 2020 bond). Because Venezuela is so dependent on oil exports, the attachment of CITGO would have profound consequences for a future rebuilding of the Venezuelan economy. Additionally, a U.S. court may hesitate to enforce the seizure of CITGO because of the consequences it could have on a power struggle between foreign leaders. While I am not sure of any precedent on this issue, it seems that Maduro's interests are largely short term - to keep everything going and buy him more time in power - while Guaidó's interests seem to be longer term and more focused on an economic rebuilding. CITGO, being an essential component of Venezuela's oil dependent economy, would be a crucial building block in an economic rebuilding. A seizure of CITGO could influence the outcome of the power struggle between Maduro and Guaidó and may be an area that a U.S. court does not want to meddle in. While Venezuela's 2020 PDVSA bond may be invalid for not receiving approval by Venezuela's National Assembly, even if the bond is deemed valid, there are other factors that a U.S. court may consider in determining whether to seize CITGO's property that should be addressed. Venezuela's ongoing economic and humanitarian crisis and a hesitation to influence the outcome of the power struggle between Maduro and Guaidó could lead U.S. courts to deny the seizure of CITGO altogether.
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Oct 14, 2019