New Venezuela Creditor Group Emerges to Tackle Defaulted Debt

(Bloomberg) -- Three hedge funds that own defaulted Venezuelan bonds hired a Washington law firm to explore legal options for repayment.

The group owns more than 15 percent of the $1.5 billion outstanding of Venezuela’s 2034 bonds, according to Mark Stancil, the attorney at Robbins, Russell, Englert, Orseck, Untereiner & Sauber LLP who’s representing the investors. Stancil declined to name the companies. He helped represent hedge funds Aurelius Capital Management and Davidson Kempner Capital Management in their lawsuit against Argentina.

The Venezuela investors, which together have about $20 billion in assets under management, are seeking to “grow the group and evaluate multiple enforcement actions” on the securities, Stancil said by phone. The notes, which had a $70 million interest payment due in January, are trading at about 31 cents on the dollar.

Stancil’s group is the latest to emerge following Venezuela’s unusual default. The nation -- mired in its worst-ever recession and an economic crisis that’s spurred droves of people to flee the nation -- has skipped payment deadlines on nearly $4 billion in bonds since November. Because of U.S. sanctions aimed at restricting financing for President Nicolas Maduro’s authoritarian regime, American investors are prohibited from engaging in a debt restructuring, and are mostly sidelined from talks with Venezuelan officials.

While the group doesn’t yet own the minimum threshold needed of the notes to demand immediate payment of their principal -- a process known as acceleration -- it does have the required amount to block key modifications to their bond contracts.

Venezuela would need the consent from holders of at least 85 percent of the outstanding debt to amend items including the amount of principal or interest owed to investors, the bonds’ maturity date, and the governing law.

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A resolution for investors may be nowhere in sight now that Maduro has secured another six-year term in snap elections earlier this month. Despite limited options, creditors have grown restless: a separate group of about 15 fund managers formalized a committee with Millstein & Co. as financial adviser, while some of the secured creditors of Venezuela’s state oil company hired law firm White & Case LLP to advise them.

Stancil said that for now, he’s sent a notice of default to Venezuela’s attorney at Dentons and Bank of New York Mellon Corp., the fiscal agent for the 2034 bonds. A representative for the bank declined to comment, while David Syed, a partner at Dentons reportedly hired by Venezuela, didn’t reply to an email seeking comment.

To contact the reporter on this story: Katia Porzecanski in New York at kporzecansk1@bloomberg.net

To contact the editors responsible for this story: Margaret Collins at mcollins45@bloomberg.net, Alan Mirabella, Josh Friedman

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