(Adds Fitch rating on new bond)
By Eyanir Chinea and Brian Ellsworth
CARACAS, Sept 19 Credit ratings agency Standard
& Poor's on Monday said Venezuelan state oil company PDVSA's
proposed bond swap was a "distressed exchange" that would be
"tantamount to default" if completed, a blow to the
cash-strapped firm's effort to seek a financial lifeline.
The announcement will likely further fuel skepticism about
the plan to ease PDVSA's $7.1 billion amortization burden in
2017 as it struggles to make ends meet under low oil prices and
an unraveling economy.
PDVSA has nonetheless promised it will honor bond
commitments no matter the fate of the swap, and investors
broadly believe it will continue making debt payments despite
triple-digit inflation, product shortages and a deep recession.
"We view the transaction as a distressed exchange," said
Standard & Poor's, which downgraded PDVSA to CC from CCC. "The
outlook is negative, reflecting a downgrade potential if the
company completes the exchange offer, which we classify as
tantamount to default."
PDVSA officials did not respond to an email seeking comment.
The company on Friday offered investors a new 2020 bond in
exchange for the 2017N bond maturing in November
2017 and the 2017 bond maturing in April.
It said shares of its Citgo Holding Inc refining unit will
be offered as collateral on the new bond.
Fitch Ratings on Monday said it expected to issue a
"CCC/RR4(exp)" rating for the 2020 bond, a rating it said
"suggests a real possibility of default."
Fitch said the bond was expected to be used in a swap
operation, but did not describe the swap in the same terms as
The swap offers one new bond for each outstanding 2017
maturity, which some Wall St. analysts saw as insufficient to
make the operation attractive.
"Bondholders may still be reluctant to exchange their bonds
... into a relatively high cash price bond on the still
uncertain repayment capacity over the next 2 years," wrote
Siobhan Morden, Head of Latin America Fixed Income Strategy at
PDVSA President Eulogio Del Pino has called the swap a good
opportunity for investors, but adds that bondholders who choose
not to participate will continue to receive payment.
The company's bonds were down across the board on Monday
even before the S&P announcement as concern about the value of
the proposal and doubts about the legal underpinning of the
Citgo guarantee weakened investor confidence.
Venezuela's opposition, which controls parliament, has said
it will oppose the use of Citgo as collateral.
While opposition deputies recognize that PDVSA can carry out
financial operations without the legislature's approval, they
say the use of a state-owned asset as collateral requires
The 2017 bond maturing in April was down 2.100 points to a
bid price of 71.5 while the 2017N was down 1.300 points to
(Writing by Brian Ellsworth; Editing by W Simon, Dan Grebler
and Chris Reese)