PDVSA Downgraded by S&P on ‘Distressed’ Bond Swap Proposal

  • Ratings agency downgrades rating on PDVSA to CC From CCC
  • Company wants to exchange bonds due in 2017 for 2020 debt

S&P Global Ratings downgraded Venezuela’s state oil company and said if a planned voluntary bond swap is carried through it would be “tantamount to default.”

The ratings agency downgraded Petroleos de Venezuela SA to CC from CCC with a negative outlook reflecting the potential for another downgrade if the swap is completed, S&P analysts led by Marcela Duenas wrote in a statement. PDVSA, as the company is known, is offering to swap $7 billion of bonds maturing in April and November next year for new 8.5 percent notes with payments staggered over the next four years. The new bonds will be backed by a “first-priority lien” on a 50.1 percent stake in Citgo Holding Inc., the unit that owns its U.S. refining arm, according to the prospectus published Friday.

While the swap is technically voluntary, S&P considers the swap offer a distressed exchange that’s coercive towards investors because “either they enter into it or the company’s not going to pay them,” Duenas said by phone from Mexico City. “That’s why we consider this a distressed offer and not liability management.”

Bonds due in 2017 that aren’t swapped in the exchange will remain rated CCC, Duenas said

PDVSA’s notes, which tumbled the most in more than six weeks on seemingly unfavorable terms for the swap earlier Monday, didn’t immediately react to the downgrade. The Venezuelan government is rated CCC by S&P.

PDVSA President Eulogio Del Pino had said that the swap had been explained to three rating agencies, with most of them seeing the offer as positive, without naming them. He also said that those creditors who decide not to participate in the tender will still be paid in full and on time.

S&P is the first ratings company to comment publicly on the offer, which expires Oct. 14 with an early tender date of Sept. 29.

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