How the Swaps Market is Preparing for a Venezuelan Default

wsj ^ | Dec 4, 2014 | Christopher Whittall

[george76]

Venezuela is really feeling the pinch from sliding oil prices. Now its bonds are in such bad shape that some investors are treating the country’s default as a near certainty.

And they are taking action. How? Well certain banks have started to offer swap contracts that allow investors to fix the amount they can recover on insurance bought against a restructuring of the country’s debt, according to investors.

If CDS contracts are triggered, the cheapest Venezuelan bonds trading in the market at that time will be used to determine payouts to protection holders. Those not wanting to take any chances that this CDS auction produces a lowball number can enter a swap to lock in their payout level now.

The appearance of these instruments – known as recovery locks or swaps – usually acts as a prelude to a debt restructuring.

...

Venezuela’s 2027 bonds have plummeted to a cash price of 51.5 cents in the dollar, while the cost of insuring against the country’s default as measured by five-year credit default swaps hit a new high of 2,749bp Tuesday

[GeronL]

Let me put it this way, the chance that this country will ever, ever pay its debt is close to nil. I do not understand why airlines and other companies are still doing business there when there is no real chance they will ever get their money.

[george76]

The regime is now grabbing stones and precious metals held in the bank vaults on behalf of foreign financial institutions.

and Goldman Sachs was hired as socialist Venezuela’s Loan Shark.

[PGR88]

What surprises me is that anyone loaned them money in the first place.

[Vince Ferrer]

We should wait until every last ounce of socialist tendencies leaves the people, then offer them a chance to become a territory like Puerto Rico. Its better than accepting illegals, because at least we get more resources along with it.