S&P: Petroleos de Venezuela Downgraded To 'CC' From 'CCC' Following Exchange Offer Announcement; Outlook Remains Negative
The downgrade follows PDVSA's announcement to exchange its existing $3.0 billion senior unsecured notes due April 2017 and its $4.1 billion senior unsecured notes due November 2017. Under the offer, PDVSA will exchange both 2017 senior unsecured notes at par, for approximately $7.1 billion 8.5% senior secured notes due 2020. The new notes will be guaranteed by 50.1% of equity shares in PDVSA's refining unit, Citgo Holding Inc.
We view the transaction as a distressed exchange. While the exchange would be made at par value, the timing of payments will be delayed with the extension of the maturity date of the new notes. Also, we view the offer as distressed rather than purely opportunistic, given the current challenging operating conditions and the significant upcoming debt maturities that PDVSA faces, which would very likely lead to a conventional default when the existing notes come due.