Venezuela's grand gathering with creditors Monday lasted all of30 minutes and didn't produce anything of substance. To makematters worse, S&P Global Ratings declared the country indefault while Fitch Ratings cited missed payments by the state oilcompany.

The actions from the ratings companies came after an oddspectacle in Caracas, where bond investors who made the trek founda red-carpet welcome, an honor guard salute and gift bags stuffedwith state-produced chocolate and coffee. Fewer than 100 creditorsshowed up at the downtown Caracas office building, and at least onehightailed it out after realizing that two government officialssanctioned by the U.S. were in attendance, fearful of violatingrules governing interactions with them.

He didn't miss much. Very little was announced and nothing wasresolved, according to attendees who said they left just asconfused about the government's intentions as they were going in.Vice President Tareck El Aissami was the only official to speak,and devoted most of his prepared remarks to railing against DonaldTrump and global financiers who he said have conspired to keep thecountry from making debt payments on time. He pledged the nationwould continue to honor its obligations and work with bondholdersto find new ways to get them their money, but offered no concreteproposals for restructuring.

President Nicolas Maduro had summoned holders of some $60billion of bonds issued by the government and state oil companyPetroleos de Venezuela to begin a renegotiation as the nation'scash crunch worsens, sanctions make it difficult to transfer moneyand delayed payments pile up. Central bank reserves have fallen toa 15-year low and oil output has sunk to the lowest since 1989.Over the weekend, the grace period on $280 million in bond paymentsexpired, and late Monday first Fitch Ratings declared PDVSA indefault followed by S&P's announcement on the government.

“We would very likely consider any Venezuelan restructuring tobe a distressed debt exchange and equivalent to default given thehighly constrained external liquidity,” S&P said in thestatement. “In addition, in our opinion, U.S. sanctions onVenezuela and government members will mostly likely result in along and difficult negotiation with bondholders.”

The nation, home to the world's largest oil reserves, owedinvestors about $200 million and failed to make those payments bythe end of a 30-day grace period, S&P said in the statement inwhich it lowered the country's rating to SD. Plagued with paymentdelays and running low on cash—and with most of its debt tradingnear 30 cents on the dollar—it's the first time in recent years thegovernment has exceeded the buffer period on its bonds.

With bonds already deeply distressed and the prospects forcredit-default swaps to trigger on the late payments, the marketreaction early Tuesday was relatively muted. Venezuela's governmentdebt has lost 20% in November alone, compared with an average 0.9%decline for developing nations, according to the Bloomberg USDEmerging Market Sovereign Bond Index.

Investors in Venezuela's $5 billion of bonds maturing in 2019and 2024 can organize to demand that the nation immediately payback all they're owed, and down the line, holders of the nation'sother debt, which have cross-default provisions, could choose to dothe same.

It's possible investors won't take those actions, and insteadput their hopes on getting a delayed payment. Otherwise, they risksetting off what could be the start of one of the messiest debtrestructurings ever. S&P said there was a 50% chance Venezuelawill default again within the next three months.

On Tuesday, the International Swaps & DerivativesAssociation will reconvene to consider whether PDVSA's delayed debtpayments will trigger default-insurance contracts. ISDA, as thegroup is known, may also receive new requests to rule on whetherthe government is also now non-

The event in Caracas, held across from the presidential palaceat the Palacio Blanco, was promoted as a critical conclave forforeign investors. Most of the attendees were locals, and none wereallowed to ask questions. Finance Minister Simon Zerpa, OilMinister Eulogio del Pino, PDVSA President Nelson Martinez andplanning vice president Ricardo Menendez were also inattendance.

In a statement, the Information Ministry called the meeting a“resounding success,” and “extremely positive.” Creditors from theVenezuela, the U.S., UK, Argentina, Colombia, Chile, Japan, Germanyand Portugal were in attendance, the ministry said.

It was never clear what the country could accomplish in terms ofa restructuring. U.S. sanctions currently prohibit the type of bondswaps that would usually be part of any debt relief, and investorshave shown a reluctance to engage with a government that's becomean international pariah amid allegations of anti-democraticactivities. The Treasury had advised U.S. investors to exerciseextreme caution to avoid running afoul of sanctions.

El Aissami blamed an international financial blockage formaking it difficult to get the money to investors, citing a move byCitigroup to close some of the country's accounts, Euroclearfreezing PDVSA bond payments and Deutsche Bank's decision todiscontinue its role as a correspondent bank this month. A DeutscheBank official declined to comment. Spokesmen at Euroclear andCitigroup didn't respond to requests for comment.

In a speech before the UN Security Council on Monday, U.S. envoyNikki Haley said Venezuela is “increasingly a violent narco-statethat threatens the region, the hemisphere and the world.”Representatives from the South American country boycotted themeeting in Manhattan, as did Russia and China, two countries thathave served as lenders of last resort.

From: Bloomberg News

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