Exprinter International Bank NV in the Netherlands Antilles sold $626 million of structured notes linked to Venezuelan bonds, perceived by investors as the riskiest debt in the world.
The notes, issued in six parts, are tied to the performance of Venezuela government debt including bonds of state-owned oil company Petroleos de Venezuela, according to data compiled by Bloomberg. The biggest portion is a $271 million issue of 20- year notes issued at 66.5 percent of face value yielding 14.5 percent. That compares with 15.2 percent on the underlying government bonds.
Credit-linked notes pay interest based on the price of the entities they reference and are usually bought by investors who aren’t able to trade the underlying securities because of regulations, cost or other reasons. Exprinter, based on the Caribbean island of Curacao, issued nine structured notes linked to Venezuela this year, Bloomberg data show.
Robin Powers, a U.S.-based lawyer at Rimon Law representing Exprinter, said the bank declined to comment on the deals.
The cost of insuring Venezuelan debt for 10 years with credit-default swaps jumped 17 percent this year to 1,120 basis points, the highest in the world ahead of Greece and Argentina. The contracts indicate a 78.4 percent probability of default on 10-year Venezuelan debt, according to data provider CMA.
Credit-default swaps are used to bet on or hedge against a borrower’s ability to repay debt. An increase indicates deterioration in the perception of credit quality. A basis point on a contract protecting $10 million of debt is equivalent to $1,000 a year.
Venezuela is rated BB- by Standard & Poor’s, three levels below investment grade, and two steps lower at B2 by Moody’s Investors Service.
The country’s economy shrank for a fifth quarter in the three months to June 30, making it the only Latin American country still in recession. Gross domestic product shrank 1.9 percent in the second quarter, and 3.5 percent in the first half.