Oil for Debt: A Unique Proposal for the Unique Challenge that is Restructuring Venezuela's Debt

Abstract

This proposal offers a unique solution for a unique challenge: using oil to pay for Venezuela’s debt. Venezuela and PDVSA’s creditors currently receive little in the way of coupon payments and have minimal means of recourse over limited assets located outside Venezuela’s borders. We suggest using a creditor trust to consolidate creditors into a single entity that would purchase the oil from Venezuela with bonds tendered by the creditors to the trust. This transaction would give the creditors trust a priority claim over oil as title holders. It allows a restructuring process with relatively few changes to current bonds, thus reducing the possibility of litigation. In addition to the legal and structural benefits offered to both Venezuela and the creditors, this proposal offers something that no other proposal does — the potential for successful execution under current U.S. sanctions based on the issuance of a specific license from OFAC. Although there is no assurance as to whether such license would be obtained, it is arguable that this structure runs outside the scope of the Executive Order No. 13,808, and that there is precedent supporting the issuance of such a license authorizing commercial transactions.

Keywords: Sovereign; Venezuela; Restructuring; Sanctions; Debt