Sign In
SHARE
Will Venezuela Really Default on its Bonds?
One of the more amusing episodes over the past few days in the world of emerging-markets debt has been the storm in a teacup over the pledge by Venezuela's Hugo Chavez to withdraw from the International Monetary Fund. Christian Oliver has a decent overview in the Washington Post today, although you can take his hyperbole about Chavez triggering "a massive debt default" with a pinch of salt.
In reality, the situation is this: if Chavez withdraws from the IMF, he breaches a covenant in most of his global bonds. In turn that puts the bonds into technical default, which means that bondholders, if they want to, can get together to try to "accelerate" the bonds and make them due and payable, at par, immediately. I'm almost certain that Venezuelan withdrawal from the IMF would not constitute a "credit event" for the purposes of the credit default swap market.
What's more, bondholders are very unlikely to want to force Venezuela to pay back its bonds at par, seeing as how most of those bonds are trading well above par. One blogger does note that there are three bonds outstanding which trade below par, and that those bonds have a face value of $4.5 billion. But even in that case the chances of acceleration are slim. Venezuela is not going to unilaterally withdraw from the IMF tomorrow: chances are it will find some kind of legal workaround which allows it to declare that it has withdrawn without triggering the covenants on its bonds.
Loading...
Thank you for registering as a Portfolio.com Insider. Your comment has been added.
Create Your Public Profile
- The Times' Rorshach Geithner Story
- Apr 27 2009 9:26AM EDT
- Sinking Animal Spirits
- Apr 27 2009 8:45AM EDT
- Counter-cyclical Urban Policy
- Apr 26 2009 10:00AM EDT
- Be Your Own Counterfeiter
- Apr 26 2009 9:36AM EDT
- Being Tim Geithner
- Apr 25 2009 12:37PM EDT
- Notes From a Press Conference Naif
- Apr 25 2009 9:41AM EDT
- What Good is the News?
- Apr 25 2009 8:32AM EDT
- Stressful Enough
- Apr 24 2009 2:29PM EDT
- Not Regretting the Pound
- Apr 24 2009 1:09PM EDT
- Introducing the New Ford Squeeze
- Apr 24 2009 9:47AM EDT
- Non-Economic Questions of the Day
- Apr 24 2009 9:12AM EDT
- The Stress Test Blind Alley
- Apr 24 2009 8:36AM EDT
- Happy Hour
- Apr 23 2009 9:40PM EDT
- Recovery Without Rebalancing
- Apr 23 2009 6:13PM EDT
- The Shape of Your Recession
- Apr 23 2009 5:11PM EDT
Archive
Categories
Links
- Email Ryan Avent
- Econospeak
- Financial Crookery
- The Epicurean Dealmaker
- Naked Capitalism
- Alphaville
- Marginal Revolution
- The Panelist
- FP Passport
- Overcoming Bias
- Andrew Leonard
- Barry Ritholtz
- Brad Setser
- Carbon Tax Center
- Calculated Risk
- Greg Mankiw
- Free Exchange
- Dean Baker
- Alexander Campbell
- Kash Mansori
- The Bayesian Heresy
- A Fistful of Euros
- John Quiggin
- Michael Mandel
- Lance Knobel
- Mark Thoma
- Dan Gross
- Curbed
- Streetsblog
- Chris Anderson
- Deal Journal
- MarketBeat
- DealBook
- DealBreaker
- Carl Bialik
- Michelle Leder
- Brad DeLong
- Ultimi Barbarorum
