PDVSA US Litigation Trust: What Creditors Should Know About the Trust, Its Claims and Its Implications for Venezuela's Restructuring

Abstract

Last week, lawyers unsealed a complaint filed in federal court in Miami, Florida on behalf of Venezuela’s state-owned oil company, Petróleos de Venezuela, S.A. (“PDVSA”), against a group of 44 oil trading companies, banks and individuals. The suit alleges that the defendants participated in a 14-year scheme to rig bids, underpay on purchases and overcharge on sales, allegedly resulting in billions of dollars of losses to PDVSA. The lawsuit was brought by an entity called the PDVSA US Litigation Trust, which was formed for the purpose of pursuing potential claims by PDVSA, and to which PDVSA has reportedly assigned its litigation rights related to the alleged bribery scheme but retained the right to receive the net recovery the Trust obtains.

The decision by PDVSA to pursue these claims in the United States at this time via a litigation trust raises a number of interesting legal and strategic issues not just for the defendants named in the suit, but also for PDVSA’s bondholders and other creditors. With respect to the litigation, there are questions as to whether the Trust has sufficient standing to be a claim, whether some or all of the claims will be barred by applicable statutes of limitation, and whether the Trust will be able to obtain the cooperation from PDVSA necessary to respond discovery requests. The case may also generate a reaction by financial creditors of PDVSA, who until now faced the prospect of pursuing claims to billions of dollars in defaulted PDVSA bonds without any known PDVSA assets in the United States, other than PDVSA’s indirect interest in CITGO Petroleum Corporation. Those creditors might now be able to lay claim to the economic value of the Trust’s lawsuit or to any recovery, on the theory that the Trust is pursuing the claims for PDVSA’s sole benefit and PDVSA has the right to receive any recovery assuming no impediment posed by any then-pending U.S. sanctions. The potential ability to attach the Trust’s recoveries may convince creditors to pursue actions against PDVSA in order to position themselves as the first beneficiaries of those recoveries, or may otherwise provide the proverbial “carrot” to offer creditors willing to restructure their claims as part of an eventual global restructuring of the debt of PDVSA, and possibly even the Republic.

Keywords: Venezuela, Debt Restructuring, Bankruptcy, Insolvency, Debt Crisis, Sovereign Debt, Sovereign Debt Restructuring, Restructuring, PDVSA