By Manuel Orozco
& Lisa M Schineller, PhD
S&P Global Ratings
Venezuela failed to make $237 million in coupon payments for its global bonds due 2025 and 2026 within the 30-calendar-day grace period.
In line with our criteria for timeliness of payments, we are lowering the issue ratings on these bonds to 'D' from 'CC'.
We are affirming the long-term foreign currency sovereign credit rating on Venezuela at 'SD'.
The local currency sovereign credit ratings and senior unsecured issue ratings on Venezuela remain on CreditWatch with negative implications, reflecting our view that the sovereign could again miss a payment on its outstanding debt obligations or advance a distressed debt exchange operation, equivalent to default, within the next three months. RATING ACTION
On Nov. 21, 2017, S&P Global Ratings lowered its issue ratings on the Bolivarian Republic of Venezuela's global bonds due 2025 and 2026 to 'D' from 'CC'. At the same time, we affirmed our long- and short-term foreign currency sovereign issuer credit ratings on Venezuela at 'SD/D'. The long- and short-term local currency sovereign credit ratings remain at 'CCC-/C' and are still on CreditWatch with negative implications. Other foreign currency senior unsecured debt issues not currently rated 'D' are rated 'CC'. Finally, we affirmed our transfer and convertibility assessment on the sovereign at 'CC'.CREDITWATCH
Our CreditWatch negative reflects our opinion that there is a one-in-two chance that Venezuela could default again within the next three months. We could lower specific issue ratings to default ('D') if Venezuela doesn't make its overdue coupon payments before the stated grace period expires, or upon the execution of the announced debt restructuring.
If the sovereign cures its default on the overdue coupon payments and remains timely on other coupon payments before the restructuring debt operation is completed, we would raise our long-term foreign currency sovereign issuer credit and issue ratings to 'CC'.
If any potential restructuring operation is completed, we would lower all of our foreign currency ratings on Venezuela to default and subsequently raise them to the 'CCC' or 'B' category. RATIONALE
On Nov. 21, 30 calendar days had passed since coupon payments were due for Venezuela's global bonds due 2025 and 2026, and Venezuela had not paid $237 million due to bondholders (or the bondholders had not received funds by that date). In accordance with our criteria, "Methodology: Timeliness of Payments: Grace Periods, Guarantees, And Use Of 'D' And 'SD' Ratings," we have lowered the issue ratings to 'D' (default) for these two bonds.
Overdue coupons now include the following four issues:US$2.496 billion 7.75% bonds due Oct. 13, 2019
US$2.496 billion 8.25% bonds due Oct. 13, 2024
US$1.6 billion 7.65% bonds due April 21, 2025
US$3 billion 11.75% bonds due Oct. 21, 2026
The government indicated on Nov. 15, 2017, that it had started to initiate payment for the global bonds due 2019 and 2024, but we have no evidence of payment to date, and the ratings on these bonds remain 'D'. Two additional coupon payments are overdue, but within their grace period. We could lower our ratings on the following issues to 'D' if the government fails to pay within the stated grace period: US$2 billion 9.00% bonds due May 7, 2023
US$2 billion 9.25% bonds due May 7, 2028
On Nov. 2, Venezuelan President Nicolas Maduro announced a government commission to restructure the sovereign's and state-owned Petróleos de Venezuela S.A.'s (PDVSA) external debt obligations. The first meeting with bondholders was held on Nov. 13, 2017, in Caracas. We would very likely consider any Venezuelan restructuring to be a distressed debt exchange and equivalent to default given the highly constrained external liquidity.
In addition, in our opinion, U.S. sanctions on Venezuela and government members will most likely result in a long and difficult negotiation with bondholders.
We believe the government is less likely to default on its local currency-denominated debt, and President Maduro made no mention of any intention to restructure this debt. Therefore, our long-term local currency rating on Venezuela remains 'CCC-'.