CACs normally dictate that any debt restructuring can proceed with a 75 per cent approval from investors, which binds any dissenting creditors in the process. But should the Venezuelan government default, analysts say that hedge funds could try to exploit the absence of CACs to block a potential restructuring and sue for full repayment. Venezuelan bonds without CACs include all of the US$35.6bn in dollar debt issued by state-owned oil company PDVSA, as well as two series of Venezuela’s own debt collectively worth US$4.3bn.
US links increase litigation risk
In the case of Argentina, the lack of these clauses staggered the restructuring process and caused delays that led to the country's 15-year isolation from the capital markets. Lee Buchheit, a partner at Cleary Gottlieb who was recently hired by Argentina's new government as the country reopens negotiations with holdout investors, added: ‘Venezuela has more commercial connections with the US than most sovereigns and that increases the litigation risk. They should be concerned about a debt restructuring that left behind holdouts.’ Sources: Reuters; Financial Times