The Venezuelan Collective Action Clauses

Author:Mr Carlos Omaña
Profession:D'Empaire Reyna Bermudez Abogados
 
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1. Adoption of Collective Action Clauses by Venezuela

Venezuela started including collective action clauses (CACs) in its international bonds issued under New York law in 2003. Currently, Venezuelan international bonds that include CACs represent an aggregate principal amount of approximately U.S.$ 4.17 billion out of a total principal of foreign external indebtedness of approximately U.S.$ 24 billion (excluding foreign external indebtedness of Venezuelan quasi-sovereigns such as Petróleos de Venezuela, S.A.1). It now seems that CACs have become a standard feature in Venezuela's international debt securities issued under New York law.

Venezuela joins Mexico, Brazil, Uruguay and other Latin-American sovereigns that had previously included CACs in their global bonds issued under New York law. However, Venezuela and Brazil are the only sovereigns whose CACs require an 85% approval threshold, as opposed to Mexico —and the majority of the other sovereigns that have included CACs— whose CACs have a 75% approval threshold.2

Set forth below is a chart that identifies the Venezuelan international bonds that currently contain CACs.

Issue date

Maturity

Aggregate principal amount

Coupon

Issue Price

September 16, 2003

2013 (1)

U.S.$ 700.000.000

10.75%

90.689%

November 26, 2003

2018

U.S.$ 1.000.000.000

7.0%3

par

October 22, 2003

2013 (Reopening)

U.S.$ 470.000.000

10.75%

95%

January 7, 2004

2034

U.S.$ 1.000.000.000

9.375%

92.976%

April 21, 2004

2011

U.S.$ 1.000.000.000

LIBOR + 1%4

109%

 

2. Description of the Venezuelan CACs

The "standard" CAC included in Venezuela's international bonds issued under New York law from September 2003 includes an 85% approval threshold to amend the payment terms of the bonds as well as some non-payment terms that are very important to noteholders.

More specifically, 85% in aggregate principal amount of each series of "outstanding"5 notes is necessary to:

change the due date for the repayment of the principal,

reduce the principal amount of the notes, or the portion of such principal amount that is payable upon acceleration of the maturity of notes,

permit early redemption of the notes,

change the interest rate on the notes or any premium payable upon their redemption,

change the currency in which interest, premiums and principal of the notes are payable or the required place or places at which payment of interest, premium or principal of the notes is payable,

shorten the period during which Venezuela is not permitted to redeem notes, or permit...

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