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Jorge Piedrahita
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As Mark and others state if we use the glasses of New York Law and legal logic it is perplexing to comprehend the prescription clause present in bonds issued by Venezuela. There is however a simple explanation regarding the genesis of this language into the prospectus of most bonds issued by Venezuela this century -- the only exception was the $1 billion issuance of the 9.375% 2034 bond in January 2004 with JPMorgan as underwriter and bookrunner which naturally gravitated the bonds to JPMorgan Chase Bank, N. A. as Fiscal Agent using the 1998 FAA which excludes this issue (as opposed to the Deutsche Bank Fiscal Agency Agreement of 2001 -- amended in 2003, 2005 and 2007). The origin of the prescription clause can be traced to the “Organic Law of the Financial Administration of the Public Sector” (*) approved on September 5, 2000 which was part of a process of reorganization of the public sector established by decree of the National Constitutional Assembly of 1999. The law in its article 99 states (free translation): "The obligations from the public debt issued or the securities that represent it prescribe at 10 years; the interest or the coupons representative of these prescribe after three years. Both periods will run from the respective due date of the obligations.” (*) For the law in Spanish please see: https://www.oas.org/juridico/spanish/ven_res35.pdf As an amateur student of legal matters related to bonded debt, I would like to hear from Mark and any others that feel excited to join the discussion. A few issues between many in my mind: a) Does local law matter at all? b) Might there be any basis for Venezuela to attempt lowering nominal claims under this clause which is codified in an important “organic” local law that investors know or should have known at the time of issuance? The Spanish text does not have inconsistencies but its sloppy literal translation with the add on of “whichever is the later of… …such payment first becomes due… and, the date on which, the full amount having been so received…” c) Does it change anything the fact that Maduro’s de-facto administration of Venezuela (not legally recognised in the US) has raised the issue and seems to acknowledge the application of a prescription? After all, bondholders cannot at this point claim ignorance about this controversial issue.
In all honesty the finding is not such as most people I know are and have been fully aware of the clause for a very long time. I am in agreement with your thinking that there is no clarity on what the clause actually means. Do investors need to just send a letter demanding payment or do they need to file a lawsuit? Is it enforceable by the Republic? (I am sure they will litigate to that effect). Remember Argentina's position regarding the Statute of Limitation which ended up costing amateur players in the holdout game. In the case of Venezuela and PDVSA, investors are in need of costly help which typically cannot be done unless you are a very large institutional investor that can afford the elevated costs involved. This clause as many other legal issues from the toolkit will put Venezuela and PDVSA restructuring on a new league regarding litigation, intercreditor issues, etc. It will be the most interesting restructuring of modern times.
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Jan 29, 2020