In the past three to four weeks, I’ve noticed a surge in Google searches for Venezuelan names associated with corruption and PDVSA. Some of the largest and most renowned banks and accounting firms globally seem suddenly overly interested in what’s happening in Venezuela. This could very well be linked to PDVSA’s announcement of a bond swap worth $7 billion. Alternatively, it might stem from persistent rumors about imminent legal cases against PDVSA that could jeopardize the company’s ability to meet its current international financial obligations, let alone future ones.
Unconfirmed rumors suggest that two major charges are being prepared: one in Houston, related to massive corruption (think multi-million dollar schemes) akin to Roberto Rincón and similar bullies focused on PDVSA; and the second, in the Southern District of New York, allegedly due to PDVSA being used as essentially an unofficial financial arm of Iran.
I must clarify that, as of this writing, these are just rumors. The bond swap for $7 billion dominates the headlines, and stakeholders—if any are left—could find themselves in a worse situation than reading the “Top ten things you need to know about PDVSA’s $7 billion bond swap” by Russ Dallen, which, among other things (link is external), states:
6. No lawyers, law firms, or advisors listed. Although the 442 pages of the document were clearly drafted by lawyers, the last page, where names are typically listed, mentions no lawyers or investment banks. This is alarming, as there are no names from PDVSA, Citgo, bondholders, Venezuela, or any of the Guarantee Agents, Paying Agents, or Trustees on this document.
7. No registered investment bank. Similarly, there’s no mention of an investment bank on the front or back cover of this agreement. However, on page 43, Credit Suisse Securities (USA) LLC is named as the “financial advisor for the Exchange Offers.” (By the way, there’s also no advice listed for them). Among other warnings, Credit Suisse’s section cautions that “the financial advisor does not commit nor will it solicit any Existing Bondholders in relation to the Exchange Offers. The financial advisor makes no recommendation to Existing Bondholders whether to exchange or refrain from exchanging their Existing Bonds.”
The first “red flag” in the above is that the agents listed from numbers 3 to 5 are not the usual A-list for a company the size of PDVSA. For instance, Glas—Global Loan Agency Services—is a relatively new player, having been founded only four years ago. On the other hand, Law Debenture, which has existed since 1889, has recently been involved in major bankruptcy situations like GM (Chapter 11), Lyondell (Millennium America) (Chapter 11), American Home Mortgage (Chapter 11), and General Growth Products (Reorganization). Additionally, last month it announced that it would be selling “virtually all of its corporate trust business to Delaware Trust Company”—suggesting Law Debenture may not even be the paying agent in the end.
The second “signal” comes in numbers 6-7. When the lawyers and investment banks on your payroll don’t put their names on the legal document, that’s a huge red flag. When even the investment bank you’re paying won’t recommend or sell the resulting financial product they created, well, either standards on Wall Street are improving or the deal stinks so badly that even they can’t stand it.
Regardless, it’s clear that PDVSA’s generosity has a ticking clock. Predetermined danger ahead.