Venezuela Sovereign Debt Strategy: Reported debt framework suggests more aggressive restructuring parameters

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Venezuela Sovereign Debt Strategy: Reported debt framework suggests more aggressive restructuring parameters

y different starting point. With debt of $240bn and GDP of

only $100bn, the restructuring would begin with debt-to-GDP above 240%. Even

assuming a relatively generous post-restructuring debt target of 95% of GDP—still

a very elevated level by emerging-market standards—the implied debt reduction

would need to exceed 60%. In other words, the framework appears designed to

justify significantly larger debt relief than investors had previously assumed.

Using the same recovery framework outlined in our November publication, and

applying an exit yield of 9.25%, our back-of-the-envelope calculations suggest fair

value could be approximately 25–30% below current market prices. While we view

these assumptions as an opening negotiating position rather than the eventual

restructuring outcome, they nonetheless establish a substantially more creditor-

unfriendly starting point than previously expected.

We would expect creditors to challenge both key pillars of the framework: the size

of the debt stock and the level of GDP. Bondholders are likely to argue for a

narrower debt perimeter, while also emphasizing Venezuela's substantial medium-

term growth potential under a normalized political and oil-sector environment.

However, unless there is meaningful pushback on these assumptions, the

proposed framework could place downward pressure on bond prices over the

coming months as investors reassess recovery values. More broadly, the large gap

between the authorities' apparent sustainability objectives and creditor recovery

expectations increases the risk of a lengthy and contentious negotiation process

that could extend well into 2027.