PDVSA’s Win-Win Option: A Bankruptcy Framework Using Chapter 15 and Section 363 to Maximize PDVSA’s Debt Restructuring Options

The Bolivarian Republic of Venezuela is experiencing one of the world’s worst economic crises in recent history and by far the worst in its history. Promulgated by failed policies of its two most recent presidents, current President Nicolás Maduro and the late Hugo Chávez, Venezuela’s future economic stability looks bleak. Currently, Venezuela’s debt exceeds its Gross Domestic Product (GDP) by over 100%, hyperinflation is over 400%, unemployment is around 20%, and Venezuela is struggling to be current on its bond payments. This economic crisis has led to a shortage of basic necessities for its people, such as food and medicine, because the country has prioritized paying its debts in lieu of these supplies. Thus, the debt of Venezuela and its wholly owned oil company, Petróleos de Venezuela, S.A. (PDVSA), require a restructuring in order to prevent widespread default. This Note focuses on restructuring PDVSA’s debt, which will, given the dire economic situation, be no easy task.

PDVSA generates about 95% of Venezuela’s revenue, which further complicates the restructuring scenario because it is so vital to the economy—as PDVSA goes, so does Venezuela. Notably, PDVSA possesses assets located outside of Venezuela, such as shares of its subsidiary, PDV Holding, and its most valuable asset CITGO Petroleum—both of which are Delaware corporations that could be subject to seizure from creditors. Along with the uncertainty of how to protect its assets in PDV Holding and CITGO, PDVSA’s creditors vary dramatically. PDVSA owes billions of dollars of claims to secured and unsecured creditors, bond holders, promissory note holders, and, possibly, judicial claimants. The reluctance of creditors to provide funding and credit to PDVSA due to the dire situation, along with PDVSA’s dependence on oil and third parties, makes for an uphill battle for PDVSA to repay its debt.

Adding to the complexity, various nations, including the United States, have imposed sanctions against the Venezuelan government for its corruption and failure to create sustainable economic conditions. These sanctions prohibit PDVSA from issuing any new debt, presenting an almost impossible barrier to overcome for any restructuring. The restructuring plan detailed below assumes that these sanctions will be lifted and leaves PDVSA with one question going forward: what is the best way to restructure its debt?

This Note posits a solution in the form of a Chapter 15 foreign bankruptcy proceeding of the United States Bankruptcy Code to answer PDVSA’s debt restructuring question. If successful, this plan protects PDVSA’s assets and seriously reduces or completely eliminates the debt of PDVSA and its Venezuelan entities from promissory note holders, bond debt, and any judicial claims. Additionally, this proceeding may also protect the assets and discharge the debt for PDVSA’s non-Venezuelan entities, such as PDV Holding and CITGO. Importantly, even if this plan is unsuccessful, pursuing a Chapter 15 bankruptcy provides PDVSA benefits and leverage while the bankruptcy court makes its decision. Thus, this plan provides a win-win option for PDVSA.

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