By Manuel Orozco
& Lisa M Schineller, PhD
S&P Ratings


MEXICO CITY -- Venezuela failed to make $200 million in coupon payments for its global bonds due 2019 and 2024 within the 30-calendar-day grace period.

In line with our criteria for timeliness of payments, we are lowering the issue ratings on these bonds to 'D' (DEFAULT) from 'CC' and the long-term foreign currency sovereign credit rating on Venezuela to 'SD' (SELECTIVE DEFAULT) from 'CC'.

The local currency sovereign credit ratings on Venezuela remain on CreditWatch with negative implications, reflecting our view that the sovereign could again miss a payment on its outstanding debt obligations or advance a distressed debt exchange operation, equivalent to default, within the next three months.

RATING ACTION

On November 13, 2017, S&P Global Ratings lowered its long- and short-term foreign currency sovereign credit ratings on the Bolivarian Republic of Venezuela to 'SD/D' from 'CC/C'. The long- and short-term local currency sovereign credit ratings remain at 'CCC-/C' and are still on CreditWatch with negative implications. At the same time, we lowered our issue ratings on Venezuela's global bonds due 2019 and 2024 to 'D' from 'CC'. Our issue ratings on the remainder of Venezuela's foreign currency senior unsecured debt remain at 'CC'. Finally, we affirmed our transfer and convertibility assessment on the sovereign at 'CC'.

CREDITWATCH

Our CreditWatch negative reflects our opinion that there is a one-in-two chance that Venezuela could default again within the next three months. We could lower specific issue ratings to default ('D') if Venezuela doesn't make its overdue coupon payments before the stated grace period expires, or upon the execution of the announced debt restructuring.

If the sovereign cures its default on the overdue coupon payments and remains timely on other coupon payments before the restructuring debt operation is completed, we would raise our long-term foreign currency sovereign issuer credit and issue ratings to 'CC'.

If any potential restructuring operation is completed, we would lower all of our foreign currency ratings on Venezuela to default and subsequently raise them to the 'CCC' or 'B' category.

RATIONALE

On Nov. 12, 30 calendar days had passed since two coupon payments were due, and Venezuela had not paid the $200 million due to bondholders (or the bondholders had not received funds by that date). In accordance with our criteria, "Methodology: Timeliness of Payments: Grace Periods, Guarantees, And Use of 'D' And 'SD' Ratings," we have lowered two issue ratings to 'D' (default), and we lowered the long-term foreign currency sovereign credit rating to 'SD' (selective default).

The overdue coupons are for the following issues:

• US$2.496 billion 7.75% bonds due 10/13/2019
• US$2.496 billion 8.25% bonds due 10/13/2024

Four additional coupon payments are overdue but within their grace period.

Unpaid obligations total $420 million. We could lower our ratings on the following issues to 'D' if the government fails to pay within the stated grace period.

• US$1.6 billion 7.65% bonds due 04/25/2025
• US$2 billion 9.00% bonds due 05/07/2023
• US$3 billion 11.75% bonds due 10/21/2026
• US$2 billion 9.25% bonds due 05/07/2028

Finally, on Nov. 2, Venezuelan President Nicolas Maduro announced a government commission to restructure the sovereign's and state-owned Petróleos de Venezuela S.A.'s (PDVSA) external debt obligations. The first meeting with bondholders was held on Nov. 13, 2017, in Caracas. We would very likely consider any Venezuelan restructuring to be a distressed debt exchange and equivalent to default given the highly constrained external liquidity (see "Rating Implications Of Exchange Offers And Similar Restructurings, Update").

In addition, in our opinion, U.S. sanctions on Venezuela and government members will most likely result in a long and difficult negotiation with bondholders.

We believe the government is less likely to default on its local currency-denominated debt, and President Maduro made no mention of any intention to restructure this debt. Therefore, our long-term local currency rating on Venezuela remains 'CCC-'.