Venezuela’s sovereign debt rating was cut to selective default by S&P over a technicality. Essentially the country missed a debt payment of roughly US$ 35 million last October and this creates a technical default even if the country is willing to pay and is up to date in other payments.
The missed payment results form oil-linked warrants that were issued in 1990 as part of the Brady restructuring of the country’s debt. Basically, each “unit” of the so called PAR bonds was attached to one of these oil-linked notes and the warrants made sporadic payments which depend on the difference between the exports price of the Venezuelan oil basket and a preset reference price. The missed payment corresponds to the period 2001-2004.
The Government argues that it has not been able to calculate exactly how much I ahs to pay and that it expects to make payment in the next fifteen days. The argument is that there is no data for the period of the 2002-2003 oil strike.
Others claim this is simply part of the absolute disorganization and lack of management by the Government at this time. Supposedly, nobody remembered to make the payment and it was not until a bond holder complained to the payment agent that S&P started finding out whether a payment had been missed or not. The B rating will be reinstated as soon as payment is made.