The 2020 Bond was the product of an exchange of PDVSA Bonds maturing in 2017 and which granted as collateral 50.1% of the shares of Citgo Holding, Inc. Thus, those bondholders who accepted the exchange would obtain an interest payment calculated at the rate of 8.50%, such payment would be guaranteed by the shares of the then PDVSA subsidiary in charge of refining Venezuelan crude oil in the United States of America.
At that time, the National Assembly objected to the swap. under the argument that it constituted a greater indebtedness, so the issuance of the securities was made without the approval of the Parliament, based on the interpretation of articles 311 and 312 of the Constitutional text.
However, in April 2019, the National Assembly agreed to authorize the payment of interest accrued by the aforementioned securities without recognizing the legal validity of the bond and in order to create the necessary conditions to defend the interests of Citgo Holding, Inc.
Today, October 15, 2019, in view of the imminent maturity of another installment of the securities on October 27, the National Assembly has agreed to ratify that the issuance of the 2020 Bond violated the provisions of Article 150 of the National Constitution. by considering that it was a contract of public interest that did not have the authorization of the National Assembly. Likewise, it ratified that such issuance of securities contained harmful financial conditions in violation of articles 311 and 312 of the Magna Carta.
However, there are legal arguments to argue that the issuance of the so-called 2020 bond should not have been approved by the National Assembly.The Court considered that it was not a contract of public interest and that PDVSA was free to issue or substitute the pre-existing debt since it was exempted from obtaining legislative authorization, all in accordance with the provisions of Article 101 of the Mexican Constitution, and that PDVSA was free to issue or substitute the pre-existing debt since it was exempted from obtaining legislative authorization. Organic Law of the Financial Administration of the Public Sector in force.
However, based on the documentation that supports the issuance of the securitiesThe courts of the State of New York of the United States of America shall be competent to hear disputes arising out of actions brought by bondholders under the laws of the State of New York.
