Once South America's richest country, Venezuela is now in its sixth year of recession. It ended 2019 with inflation at 9,585.5 per cent, a considerable drop from 2018 largely due to the government relaxing economic regulation and ending the enforcement of price controls. The recession and hyperinflation has led Venezuelans to lose faith in the country's currency, the Bolivar. The government has responded by relaxing foreign exchange controls and allowing companies to raise capital in dollars, a move Coca Cola Femsa de Venezuela's CEO, Javier Riccobono, is "encouraged" by.

2019 was not "a good year for bondholders in Venezuela" either, with bondholders facing missed payments and sanctions. The start of 2019 seemed promising with a bond rally of over 40 per cent, driven by hope of a new leader as socialist President Nicolás Maduro's hold on power started to slip away and opposition leader, Juan Guaidó, gained momentum. Guaidó declared himself interim president on 23 January 2019 in his capacity as President of the National Assembly.

However, the bond rally did not last long. On 28 January 2019, in an attempt to cut foreign investment to Maduro's government, the US imposed sanctions on state-owned oil group PDVSA restricting US corporations and individuals from engaging in transactions with the company and trading its securities.

In July, JP Morgan also cut the weighting of Venezuelan bonds to "zero-weight", causing prices to fall and forcing holders to sell their positions at severely distressed prices.

In October, the US Treasury Department blocked PDVSA bondholders from collecting their collateral for 90 days. The block was enforced days before an anticipated default of a USD 913m payment. The bonds were secured by 50.1 per cent of the share capital of Citgo Holding Inc., a subsidiary of PDVSA. The 2019 missed payment coupled with PDVSA's 2017 default on some of its bonds, leaves PDVSA in default on USD 6bn. Venezuela now faces litigation proceedings from creditors and the country has reportedly put aside USD 20m to defend the claims.

Venezuela has reportedly initiated talks with China over financial support to cope with the sharp drop in oil prices and the arrival of COVID-19, with 91 cases confirmed in the country on 24 March. This follows the IMF's flat rejection of Venezuela's request for USD 5bn in financing to tackle the virus.

The delays to cargoes of Venezuelan crude caused by COVID-19-related health inspections have added to the surplus of Venezuelan crude that preceded the pandemic, as US sanctions deterred buyers. The country’s exports are down from 1.046m barrels per day (bpd) in February to approximately 795,000 bpd in March, the lowest since August 2019, marking a further threat to PDVSA.

Special Thanks

We appreciate the assistance of Pedro Luis Planchart Pocaterra at ARAQUEREYNA with the following discussion on Venezuelan law, regulation and practice.

Venezuelan Legal System

The Bolivarian Republic of Venezuela is a federal republic comprised of 23 states, two federal territories, one capital district and 11 groups of islands (the so called, federal dependencies). The political system is made up of mainly executive, legislative and judicial powers. The country’s most recent constitution, which was ratified by referendum in 1999, added two new governmental branches: (i) the citizen power; and (ii) the electoral power. The constitution calls for an active government that promotes cultural, economic and social rights, in addition to civil and political rights. Venezuela has a civil law system with roots in Roman law. The Tribunal Supremo de Justicia ("Supreme Tribunal of Justice") heads the Venezuelan judicial system.

Key Points for Traders

  • No banking licence is required to lend in Venezuela.
  • Debt trading can occur by way of assignment, but notice must be given to the debtor and the guarantor.
  • Lenders in Venezuela will be subject to Income Tax and Stamp Tax if the credit instruments are issued in Venezuela by financial entities subject to the Decree with force of Law of the Banking Sector Institutions.

Banking Licence Requirements

Venezuela does not have eligibility requirements for lenders and does not require lenders to be licensed or authorised to do business in Venezuela. However, the nature of the lender is relevant to determining the applicable income tax regime, because a 34 per cent tax rate on net income of non-bank lenders (absent a tax treaty provision) and a 40 per cent tax rate applies on net income of local financial institutions. Despite the lack of banking licence need in Venezuela, it does not afford a lender an automatic right to lend in Venezuela as trade sanctions and “other operational challenges” may present difficulties in lending.

Method of Transfer

To assign a loan, notice must be given to the debtor and the guarantor, pursuant to Venezuela’s Civil and Commercial Codes. The loan documents may establish additional conditions for transferability.

There are differences between the authorisations required to be a beneficiary of a chattel mortgage and pledge without transfer of possession, depending on the type of lender. No authorisation is required if the lender is a local bank. Authorisation from the Superintendency of the Banking Sector Institutions will be necessary if it is a foreign bank and authorisation from other agencies may be needed for certain security interests in favour of other types of lenders, depending on the nature of the properties and/or interest subject to the chattel mortgage or the pledge without transfer of possession.

Security and Trusts / Agency

For trusts created in Venezuela, the trustee must be a local bank or insurance company authorised to operate as such.

A security agent can be created, empowering such agent to act on behalf of all the secured lenders. The security agent may serve as payment agent and be authorised to receive payments and to make distributions of such payments among the secured lenders. Depending on the nature of the security interest being created, some formalities (notarisation/and or registration of the document empowering the security agent) might be required.

Tax and Stamp Duty Consideration

Interest payments made to foreign lenders are subject to withholding tax, typically at 4.95 per cent. The borrower is to withhold the tax when making the interest payments. Interest payments to local banks are not subject to withholding tax but they are subject to stamp taxes if the credit instruments are issued in Venezuela by financial entities subject to the Decree force of Law of the Banking Sector.

Notary Requirements and Enforcement

Registrations of security interests on properties located in Venezuela generate fees that are calculated based on the value assigned to the security interest. Notarisation fees are calculated pursuant to the particulars of the document, not the type or value of the assets. If the security interests are on properties or rights not located in Venezuela, the creation, perfection and enforcement of the security interests is not governed by the laws of Venezuela, regardless of whether the borrower and/or owner of the secured properties or rights is an individual or corporate legal entity domiciled in Venezuela.

Venezuelan courts will recognise a foreign governing law of a contract and will enforce such a contract in Venezuela, absent exceptions for national interest contracts and public policy reasons. To recognise and enforce a foreign judgment requires a procedure before the Supreme Court, but does not require an examination of the merits. Under the Venezuelan 1998 Commercial Arbitration Act and as a party to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, Venezuela recognises foreign arbitral awards. The process takes one to two years and the enforcement against assets of a defendant in Venezuela may take six months to a year. To enforce collateral security, Venezuelan procedures require a public auction that takes place at, and is controlled by, the competent court. Self-help provisions to seize property on collateral security interests located in Venezuela are not valid in Venezuela, except for pledges on bank accounts.

Venezuelan Notable Transactions


At a time when oil prices are suffering at around USD 25 per barrel, Russian state oil company, Rosneft announced that it had sold its assets in Venezuela to an unnamed company owned by the Russian government “including joint ventures of Petromonagas, Petroperija, Boqueron, Petromiranda and Petrovictoria, as well as oilfield services companies, commercial and trading operations” and it terminated its operations in the country. Earlier in the year, two units of Rosneft had sanctions placed upon it by the US for operating in Venezuela.

As a result of the sale, all assets and trading operations of Rosneft in, or connected with, Venezuela are to be disposed of, terminated or liquidated. The sale of the assets will result in Rosneft receiving as a settlement payment, a 9.6 per cent. share of its equity capital which will be held by a subsidiary of Rosneft.

On 18 February, the US imposed sanctions on Rosneft Trading SA ("RTSA"), a subsidiary of Russia's state-owned oil producer, Rosneft, and the company's Chairman, Didier Casimiro. According to US Secretary of State, Mike Pompeo, the sanctions were issued "for the sale and transport of Venezuela's crude oil" which violated the existing US sanctions on PDVSA. The blacklisting of RTSA is intended to increase pressure on Nicolás Maduro's regime and prevent his "repression of the Venezuelan people".

Rosneft holds stakes in five oil and gas fields in Venezuela. Between 2014 and 2018, the company loaned USD 6.5bn to PDVSA which the country has been paying back in oil trades.

In a press release issued on 18 February, Rosneft said it considered the sanctions to be "illegal, unjustified, and an act of legal abuse". Referring to the loan to PDVSA, the company said it had made investments in Venezuela long before Washington imposed sanctions and that its oil-trading operations were to recover those investments.

As the sanctions are limited to RTSA and do not apply to Rosneft itself, analysts have said they are unlikely to have a significant impact on the company's operations or financials.

Companies engaged in business with RTSA have 90 days to wind down their dealings. Washington has advised any companies not able to do so by 20 May to obtain advice from the US Office of Foreign Assets Control ("OFAC"). Despite the blacklisting, Rosneft has indicated that RTSA will continue operating as normal, saying that it expects to continue to receive income from its oil production projects in Kurdistan.

The company has also made attempts to get round the sanctions by increasing oil shipments from Venezuela via another of its subsidiaries, TNK Trading International SA, which is not blacklisted by OFAC.

In response, the US Special Representative for Venezuela, Elliott Abrams, said that if Rosneft "play[s] games" then its other companies will be blacklisted as well. He also explained that Washington intends to target other customers of Venezuelan oil with sanctions. Furthermore, when asked at a news conference in Delhi whether the US would blacklist any Indian companies that buy Venezuelan oil, Donald Trump announced that there could be "very serious sanctions" imposed.


PDVSA, Venezuela's state-run oil company, is in default on its bonds and has stopped paying interest on the majority of its bonds. As a result, Venezuela's government has accumulated billions of dollars in late interest payments. The company is in default on USD 6bn in interest and principle.

On 19 February 2020, Venezuelan President Nicolás Maduro declared an energy emergency, reacting to the US sanctions of Rosneft. Maduro instituted a restructuring of PDVSA. Maduro named a commission led by Economy Vice President Tareck El Aissami, along with a number of other cabinet ministers, to restructure the industry. In addition, gasoline and diesel production has been inconsistent and in decline due to the deterioration of Venezuela's refining system. Venezuela's judiciary has sought to seize six private shipping agencies over debts owed to PDVSA and alleged "misappropriation" of funds.

Sanctions imposed by the United States in 2019 forced PDVSA to cease most of its crude upgrading activity. This affected the nation's oil production which then declined to its lowest level in almost 75 years. After a year of inactivity, in an attempt to boost output of its flagship grade for exports, the company plans to restart operations at two key plants in the next few months.

COVID-19 and Force Majeure - Can I Terminate My Trade?

A Force Majeure clause in a contract is a provision which removes a party's liability for breach or non performance of its contractual obligations where it is unable to fulfil such obligations due to an event outside its control.

As a result of the current COVID-19 crisis, parties may be considering what impact this will have on debt trades and whether the pandemic would give them a right to terminate.

However, there are no Force Majeure provisions in the LMA standard secondary trading documentation and parties have no right to terminate a trade for an unforeseen event, such as a pandemic. As established in the judgment of Bear Stearns Bank plc v Forum Global Equity Ltd [2007] EWHC 1576 (Comm), a trade is binding from the date on which there is oral or written agreement and the key requirements of a contract are met: offer, acceptance, consideration, intention to create legal relations and certainty of terms.

The only contractual option to terminate under the LMA Standard Terms and Conditions is set out in Condition 3 (Termination) in circumstances whereby the counterparty becomes insolvent. This condition became part of the Standard Terms and Conditions following the collapse of Lehman Brothers in 2008. A right to terminate may also arise where there is a fundamental breach of a condition between the Trade Date and Settlement Date (e.g. a representation made on the Trade Date is incapable of being repeated on the Settlement Date). But this is fact specific and advice on the particular breach is required in each case.

Although Force Majeure is not directly relevant to LMA trades, it is a current topic of interest to clients generally given the recent turmoil in the financial markets following COVID-19. Please contact Tim Davison, Mark Lubbock or Andrew Baker for more information.

Current Airline Trends

With demand plummeting due to travel bans and passenger cancellations, airlines are struggling to cope with the effects of the COVID-19 pandemic. Consultancy firm, Centre for Aviation, estimates that many airlines will go bust before the end of May.

European holiday company, Tui is said to be "more stretched" than other tour operators. The company's shares have fallen and the cost of insuring its debt has nearly quadrupled in the past month. Its cash reserves are expected to be paid out in their entirety for customer refunds.

Peter Norris, Chairman of the Virgin Group which owns Virgin Holidays, is said to have sent a letter to the UK Government on 16 March asking for a credit facility of up to GBP 7.5bn to rescue the airline industry. The letter is reported to include a warning that even the biggest carriers may run out of money as a result of the travel bans. easyJet has also called for government help and warned that it may have to ground most of its fleet.

British Airways ("BA") on the other hand has not requested state aid, with Willie Walsh, CEO of BA's parent company IAG, commenting that he thinks airlines should "self-help" first. The airline has however reportedly sought urgent financing from various lenders including Bank of America, Goldman Sachs and Deutsche Bank.

IAG which also owns Aer Lingus, Iberia and Vueling has said it expects its flying capacity to be cut by 75 per cent in April and May.

For more detailed information on current airline trends, please click here.

Notable Transactions


On 28 February, the Paris Commercial Court approved a debt repayment plan for Rallye which gives the company 10 years to repay EUR 2.9bn of debt.

Not covered in the plan were derivatives transactions which Rallye had entered into with its creditor banks. The derivatives were due for repayment in June 2021 and December 2022. However, investor Daniel Kretinsky, who owns 5.6 per cent of French supermarket group Casino, a subsidiary of Rallye, has agreed to refinance these derivatives arrangements.

The Czech billionaire will provide loans of up to EUR 233m through his investment vehicle to refund the arrangements. The four-year loan will be secured by a pledge over 9.5m shares in Casino which will be placed in a fiduciary trust.

Under the new arrangement, Casino will not be required to pay dividends to repay the Rallye derivatives, an outcome which Kepler Cheuvreux analyst, Fabienne Caron, has described as "good news for Casino".

As a result of the developments of COVID-19 and its impact on financial markets, on 30 March 2020 Rallye sent out a press release announcing the conclusion of a refinancing agreement of the group's derivatives transactions and a potential investment by Fimalac in the Euris Group. The maximum amount of the facility is EUR 215m. Under this agreement, Fimalac will provide a financing facility to either a subsidiary of Euris or to Rallye, with a maturity of four years to allow repayment of all derivatives transactions of Rallye, HMB and Cobivia which are not covered by other safeguard plans. In addition, for a period of seven years Fimalac may decide to invest in Euris up to 49.99 per cent through a new holding company, which would be owned by Jean-Charles Naouri and his family and will control Euris. Jean- Charles Naouri will also propose to the Board of directors and shareholders of Casino to appoint a representative of Fimalac to the board.

NMC Healthcare PLC ("NMC")

Investors and creditors in the NMC group (including (i) shareholders, (ii) lenders under the USD 2bn syndicated term loan facility, (iii) holders of the USD 360m 1.875% Convertible Notes due May 2025 and (iv) holders of the USD 400m 5.95% Sukuk Notes due 2023) continue to monitor developments with NMC closely following:

  1. NMC's 12 March 2020 statement reporting that its advisors "discovered evidence leading to suspected fraudulent behaviour in relation to some elements of NMC's previous financial activities";
  2. the Financial Conduct Authority commencing a formal enforcement investigation into NMC;
  3. trading of NMC's shares on the LSE being temporarily suspended and
  4. their removal from the FTSE 100; and
  5. NMC's debt restructuring advisors requesting that creditors enter a formal standstill with NMC, agreeing not to exercise their rights and remedies in respect of a current or future default by NMC following the disclosures regarding the suspected fraudulent behaviour and reported cash shortages.

NMC's troubles came to the boil on 17 December 2020 when Muddy Waters published a report questioning the asset values, cash balances, reported profits and reported debt levels of the NMC group - the largest private healthcare provider in the UAE with operations around the world and the first Abu Dhabi company to be listed on the LSE. Muddy Waters concluded their report by stating that "[w]e are not sure how deep the rot at NMC goes but we do not believe that its insiders or financials can be trusted".

NMC launched a detailed rebuttal following Muddy Waters' claims. However, the independent investigation that it launched, led by former judge and FBI head, Louis Freeth unearthed surprising discoveries including:

  1. Discrepancies in reported shareholdings: discrepancies arose regarding the shareholdings of its three largest shareholders - BR Shetty (founder and chairman), Khalifa bin Butti (executive vice-chairman) and Saeed bin Butti.
  2. Discrepancies in bank statements and financial reporting: NMC announced on 26 February 2020 the discovery of (a) discrepancies in NMC's bank statements and (b) a 2018 USD 335m supply chain financing arrangement guaranteed by NMC apparently used by BR Shetty and Khalifa bin Butti for "non-group purposes" which was neither approved by the board nor disclosed to the market in compliance with the listing rules in respect of related party transactions.
  3. Debt position materially above reported position: On 10 March 2020, the NMC board advised that NMC's debt position was materially above the USD 2.1bn figure reported in its June 2019 Half Year results. The figure is estimated to be closer to USD 5bn, with other USD 2.7bn of facilities being identified that were not previously disclosed to or approved by the board.

A class action lawsuit has been filed against NMC in the United States District Court for the Central District of California on behalf of those who purchased or acquired securities of NMC between 13 March 2006 and 10 March 2020.

For more information on NMC, please click here or contact Louisa Watt or Hannah Geddes.


In one of Europe's largest ever buyout deals, German conglomerate Thyssenkrupp has raised EUR 17.2bn from a group led by private equity firms Advent International and Cinven. The winning bid was EUR 700m higher than the next highest offer from a consortium led by private equity groups Blackstone and Carlyle. The deal's debt to earnings ratio will be around eight times, one of the highest leverage levels recorded for a large European private equity buyout in recent years. The deal will be funded with leveraged loans, high-yield bonds, and potentially an extra portion of payment-in-kind debt if required.

TThyssenkrupp was perceived by bidders as a good investment due to its "high customer retention rates" and "defensive cash flow". In addition, the business is seen as a recession-resistant asset, making it attractive in light of the COVID-19 outbreak, unlikely to be deeply affected by a downturn as safety regulations require companies to have their lifts serviced.

Please contact Iden Asl or Lucy Hartland with any queries regarding this month's Trade Alert.



DISCLAIMER: This publication is for general purposes and does not provide comprehensive or full legal advice. It is based upon public information available at the time of publication and is subject to change. Brown Rudnick LLP does not accept any responsibility for losses that may arise from reliance upon information contained in this update. This publication is intended to give an indication of legal issues upon which you may need advice. The contents of this update may not be relied upon as accurate or sufficient and full legal advice should be taken in relation to specific trading situations.

Brown Rudnick LLP, a limited liability partnership organized under the laws of the Commonwealth of Massachusetts ("BR-USA"), is affiliated with Brown Rudnick LLP, a limited liability partnership registered in England and Wales with registered number OC300611 ("BR-UK"). BR-UK is a law firm of Solicitors and Registered Foreign Lawyers authorised and regulated by the Solicitors Regulation Authority of England and Wales, and registered with the Paris Bar pursuant to the 98/5/EC Directive. A full list of members of BR-UK, who are either Solicitors, European lawyers or Registered Foreign Lawyers, is open to inspection at its registered office, 8 Clifford Street, London W1S 2LQ, England (tel. +44.20.7851.6000; fax. +44.20.7851.6100). Information contained in this Alert is not intended to constitute legal advice by the author or the lawyers at Brown Rudnick LLP, and they expressly disclaim any such interpretation by any party. Specific legal advice depends on the facts of each situation and may vary from situation to situation.