Venezuela’s opposition government has hired veteran sovereign debt lawyer Lee Buchheit to help restructure the country’s $150bn debt burden, indicating it could take a tough approach against investors that have snapped up defaulted Venezuelan bonds.
The stricken Latin American country has largely been in default since 2017. A restructuring has, in practice, been precluded by US government sanctions that prohibit trading in the securities of Venezuela and PDVSA, the national oil company that makes up a big chunk of the state’s indebtedness.
The opposition government has held discreet talks in Oslo, Norway, with the incumbent government led by President Nicolás Maduro. The outcome is uncertain, but Mr Buchheit’s hiring probably augurs a sweeping attempt to tackle Venezuela’s debts should interim president Juan Guaidó manage to take control of the country.
“Lee is an amazingly creative thinker,” Ricardo Hausmann, an economic adviser to Mr Guaidó, said in an interview with the FT. “It will require a lot of creative thinking to find the solution to many of the challenges that we will face ahead.”
Mr Buchheit advocated using US presidential executive orders to facilitate a quick, deep and broad-based restructuring, rather than a more painstaking attempt tailored for each different type of creditor. Venezuela owes money to a vast pool of creditors, including those who hold unpaid bonds, promissory notes, arbitration awards and other claims. An executive order that ringfences Venezuelan assets on US soil from seizure by creditors would be “extraordinarily helpful”, Mr Buchheit told the FT.
“Because you have such a diverse group of claimants, the chances for inter-creditor rivalry are unusually high,” Mr Buchheit said.
“The bondholders sit there and watch arbitration holders like [Canadian gold miner] Crystallex and they wonder whether arbitration holders are stealing a march on them.”
Crystallex, which is backed by hedge fund Tenor Capital, has sued Venezuela over the nationalisation of a gold-mining project in 2011. Since then, it has wrested hundreds of millions from Venezuela as part of the $1.4bn arbitration award it won three years ago.
But, Mr Buchheit argued: “If you had a preservation of assets, it would remove that anxiety so you wouldn’t have creditors feeling like they would have to rush to the courthouse to preserve their place in the queue.”
The former Cleary Gottlieb partner, who is working for Venezuela’s opposition government on a pro bono basis, is the most prominent lawyer in the field of government debt restructuring, having represented nearly every country that has suffered a financial calamity over the past three decades.
They include Mexico and the Philippines in the 1980s, Russia and Ecuador in the 1990s, Iraq and Uruguay in the 2000s, and most recently Greece, where he in 2012 engineered that country’s record-breaking €200bn debt restructuring.
His often innovative legal gambits have frequently drawn ire from critics, who accuse him of running roughshod over creditor rights and imperilling the willingness of investors to lend to emerging economies.
However, even his critics concede that he is the field’s pre-eminent practitioner, with Adam Lerrick, an adviser to the US Treasury, once admitting that “everyone in this field is a DOB — disciple of Buchheit — whether they like it or not”.
Mr Buchheit retired from Cleary Gottlieb earlier this year, after more than four decades at the law firm that represents the biggest Venezuelan bondholder group, which includes investment groups such as T Rowe Price, Greylock Capital and GMO.
The opposition government’s first priority would be to stabilise the country and revive its wrecked economy, according to Mr Hausmann. “Everything else has to be subservient to that first problem, because without the recovery of Venezuela’s economy there will not be a future for anybody whether it is the Venezuelan people or legacy creditors,” he said.