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00:00So we've got two separate issues going on there and I just want to clarify what we talked about yesterday on the show was is saying that OK now we've got the credit default swaps here the insurance protection has been triggered. How is the payout determined on that. Because that's going to be done next we can auction off these bonds. Can you just briefly explain that and then we'll move on to the comparison with in default and Venezuela defaulting. So it's interesting because what's going on with Venezuela is that these payments that were not made which triggered the credit default swap Dax are said to be by the government on their way. Yes but they weren't there on time . So if you're holding the CBS you get paid on the you get paid on the on the trigger on your insurance but you potentially also get paid on your coupon which is on its way. Yes. The thing that will be interesting is to see let's say the coupon is on its way but it doesn't make it on its way. It doesn't make it into your bank account before you're supposed to deliver your bonds to auction which is how these one way of settling CBS you bring your bonds you bring your bonds and you submit them introduction and they figure out what the right price is and then you make 100 minus the price of the bond. But let's say you don't want us do you want to submit them to auction off your coupon is on the way. So that's something that we're now talking to traders about like what's going to happen at this auction. How is it going to work out. Typically you want to bring the cheapest to deliver to these auctions and that's another thing right if these bonds are technically in default but not really in default because their payments are late the price isn't going to be as low as it would be in as in in a typical situation critical common theme across multiple segments today And what'd you Miss?. Now another fascinating thing we told you about this in one of your recent appearances on the show is like for owners of these defaulted bonds they paid a visit was like Is there anything recoverable. It's not really clear there is and you talked to a former hedge fund manager who is very active in the whole fight in Argentina about why this is no Argentina. Tell us the story right. So ise we spoke with Jay Newman who ran Paul Singer's bet against well a bet on Argentine default the debt for 15 years. I mean he started from start to finish and then he retired a couple of months after Argentina finally paid. So he saw the whole thing come to an end. So we talked to him about what he season in Venezuela and what he makes of the situation and what's really interesting is that unlike the case of Argentina Venezuela it has a state oil company with assets around the world it's involved in global trade. Argentina was didn't have a state you know it was a big commodity producer but it doesn't have like state entities around the world. So the ability for Elliott to collect on Argentina's assets was really hard. I mean they they ultimately won because of legal savvy. It had nothing to do really with what seizure of assets but a lot of people have said well with Venezuela you have so many assets you can seize this can be so much easier. And his point was like No it's not. He was he was saying first of all is a lot harder to seize assets than you think you have to pierce Scoville is very very difficult . Second he thinks that the value of the pit of those assets around the world is very very small because so much has been borrowed against them so you'd have very little to fight over . And third he said that you could be in a situation where PDVSA loses its oil concession. And so literally you're just left because the oil concession doesn't belong to PDVSA belongs to the government. And this is the key. Yeah. Because right now what confused me about this was the Russians the Chinese are very happy to lend Venezuela money because they recognize that there's underlying assets here and this oil. Absolutely what you're saying is actually the state could go. Actually the state oil company doesn't actually own these oil assets. We own that and they're the shell value of these oil companies. Xie Exactly. It's left with all the liabilities and none of the assets. And and then essentially if you want to hold out in that situation I mean you got a claim on nothing right. You've got you've got just this empty bag full of liabilities. What happens if these bonds were issued under New York rules. Does that give an investor any protection so it gives them protection in the sense that they can sue in the United States and try to claim assets in the United States. But Jay's point was that they're going to be pretty valueless assets here in the United States what you really want is to go oil right. Right exactly . And they're they're worthless if if that company has no longer is no longer producing any oil right. So it's really kind of fascinating because it's it's a conspiracy it's not a conspiracy . Well it's almost a conspiracy theory because you have to assume the worst case scenario that that the government is willing to do this to creditors and it's mostly been shrugged off. So to have a guy like Jay say that this is a possibilities is something Venezuela's all the way along until this point has done its best to pay its debts because they don't think they're hanging over right. Yeah I know the guys that are against gays has told us repeatedly. Yeah they've made that clear. So what's next what will you be looking for us and next turn in this story. So it's really day by day now works so we're all in the dark. I mean this is the most opaque I've ever seen in my years of covering news it's just like everyday. Nobody has any idea what's going on. And it's really because the government says one thing and then that doesn't end up happening or at least it doesn't end up happening right away so nobody really knows if they're being lied to or if there's something more devious at play. And so right now what we're tracking is to see if they're actually making the coupons that they claim that they're making because when is the default really going to happen. They said they want to restructure their debt. They say we're gonna keep paying our coupons before while we figure that out but then the coupon payments take so long to arrive . We're all trying to piece together if they're like faking a default or not. So it's really fascinating stuff so we're keeping everyday keeping track of those payments .

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Venezuela's PDVSA in Default

Venezuela's state oil company, PDVSA, is in default. That's according to the International Swaps and Derivatives Association. Bloomberg's Katia Porzecanski reports on "What'd You Miss?" (Source: Bloomberg)

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