(Bloomberg) -- The cost to protect against a default by Venezuela’s state oil company hit a record as traders speculate a principal payment that was due last week won’t be made in time to prevent the derivative contracts from triggering.
Petroleos de Venezuela’s five-year credit default swaps have jumped about 1.5 percentage points this week to about 75 points upfront, according to prices compiled by CMA. Late Monday, Moody’s Investors Service lowered PDVSA’s rating to Ca, its second-lowest level, citing a payment default on notes that matured Nov. 2, and the expectation that the company will default on other debt obligations in the near term.
PDVSA owed $1.1 billion in principal on the payment last week. While government officials said Nov. 2 they’d begun transferring the funds, bondholders have yet to see the cash and are awaiting news from bankers and other intermediaries on whether they’ve received any money from PDVSA. If no payment comes by the end of Tuesday, investors may ask the International Swaps & Derivatives Association to determine whether a credit event occurred that can trigger credit default swaps.
The confusion over the payment comes after President Nicolas Maduro announced a global restructuring of the nation’s debt and said the payment on the 2017 bonds would be the last before beginning a negotiation with creditors. While the government invited bondholders to Caracas for a meeting Nov. 13, current U.S. sanctions would prevent creditors from engaging in a debt swap and will likely dissuade them from taking part in talks.
PDVSA and Venezuela bonds have plunged in the wake of the restructuring announcement, with many tumbling toward 20 cents on the dollar.