Implications Arising from the Recent Venezuelan Sanctions

One risk created by the new sanctions that seems to have evaded extensive discussion is what happens to those holding Venezuelan bonds at their time of maturity. Although the Venezuelan government might want to roll over the debt, the sanctions prohibit any formal or effective rollover, because any such “new debt” could not be for longer than 30 days. If the maturity date for a bond passed, only default would avoid this result, since accepting continued payments extends the debt. But OFAC has yet to provide guidance on the implications of a default by the Venezuelan government. Although defaults are not extensions of credit per se, they can operate like a credit extension. Thus, it is not clear if a license would be required to collect following a default because the effective extension operates as “new” debt, even though involuntarily created. Certainly, any extension of an existing credit facility or other debt could trigger the sanctions, but OFAC has not advised whether this would be the case where the “credit” results from a refusal to pay. If it did, the sanctions could give Venezuela an excuse to unilaterally extend repayment terms while the sanctions are in place. More …