Venezuela is currently facing a grave humanitarian crisis along with a major economic and financial crisis. Venezuela has been in default on its debt for two-and-a-half years, and it has a huge debt burden which is estimated to be approximately $150 billion or more. If and when a new government comes to power (to succeed the current Maduro regime), it will need to both restructure this debt burden and rebuild its economy.
However, any eventual debt restructuring and economic recovery effort will involve overcoming daunting challenges. The debt restructuring promises to be incredibly complex for many reasons, including the fact that Venezuela has a very diverse creditor body which could give rise to serious intercreditor tensions. Moreover, as the Venezuelan economy has virtually collapsed in the last few years, the economic recovery effort will involve rebuilding Venezuela’s oil industry, the traditional engine of the national economy which is currently considered to be in a state of major disrepair (Venezuelan oil production has declined sharply in recent years).
My recently published article provides an overview of certain key legal and policy issues that are likely to arise in an eventual Venezuelan debt restructuring. The article focuses on what will likely be the central elements of any future debt restructuring, including the possibility of debt-for-equity swaps and oil warrants. It also reviews various considerations for a possible insolvency filing by Venezuela's state-owned oil company, PDVSA.
Further, the article discusses legal and policy considerations related to economic recovery efforts that Venezuela may undertake in the future, including the revival of its oil industry as well as any attempts to diversify its economy so that it is not so reliant on a single commodity, oil. Finally, the article examines the issue of asset recovery and, in particular, how a future Venezuelan regime might seek to recover misappropriated assets.
Part of this post first appeared on the Harvard Law School Bankruptcy Roundtable here.
Steven T. Kargman is the President of Kargman Associates.