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Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.

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Speaker 2: Hello and welcome to another episode of the Odd Lots Podcast.

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Speaker 3: I'm Tracy Alloway.

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Speaker 4: And I'm Joe Wisenthal Joe Venezuela vel.

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Speaker 2: So we've done the oil market, we got to do

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Speaker 2: the debt market.

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Speaker 4: You gotta do the debt market. I don't know anything

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Speaker 4: about this stuff.

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Speaker 3: Well, okay.

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Speaker 2: One of the reasons that I really like covering the

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Speaker 2: debt market, yeah bonds, is because I think we're used

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Speaker 2: to thinking of bonds as contracts, but I always like

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Speaker 2: to think of them more as stories.

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Speaker 5: Yeah.

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Speaker 2: So they're full of all these narratives and embedded values

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Speaker 2: and history. And there's actually a great quote from Margaret Atwood.

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Speaker 2: She wrote this whole book called Payback on Debt, and

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Speaker 2: she describes it as a or a memory of who

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Speaker 2: owes what and why? Yeah, And of course, if you're

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Speaker 2: talking about a story or a narrative, those can change

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Speaker 2: over time, right, absolutely.

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Speaker 4: I mean, so, one thing I know is that just

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Speaker 4: since Saturday morning in the early trading, I think the

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Speaker 4: existing defaulted Venezuelan debt that's out there, I think it's rallied.

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Speaker 4: I think it's gone on. Oh yeah, But I don't understand, Like,

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Speaker 4: you know, you're trying to get the economy going again.

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Speaker 4: You're gonna make everybody pay for this money that was

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Speaker 4: borrowed by someone who the international community regards to be

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Speaker 4: legitimate a dictator if anything. Shouldn't the creditors that facilitated

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Speaker 4: his ongoing rise, shouldn't they have to pay? Not only

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Speaker 4: should they not get paid back, shouldn't they pay the

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Speaker 4: people of Venezuela extra for having subsidized someone that is

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Speaker 4: widely regarded to be a criminal. We're calling this guy

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Speaker 4: an ARCO terrorist. And yet so it's like, shouldn't we

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Speaker 4: punish the people who lent to him?

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Speaker 2: Maybe you should be on the rest structuring team, Joe, No,

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Speaker 2: but it's true. So this is the debate. So you're right,

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Speaker 2: bond have rallied. So there's Venezuelan sovereign debt. There's also

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Speaker 2: debt issued by Pey Deavesa, and those have gone from

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Speaker 2: like five cents on the dollar a few years ago

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Speaker 2: to more than thirty cents. So people are already making money.

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Speaker 2: And the bet here is that there is going to

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Speaker 2: be some sort of restructuring and they're going to get

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Speaker 2: more money. And of course the creditors, the investors always

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Speaker 2: want more. Meanwhile, there's a strong argument that the Venezuelan

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Speaker 2: people should have their debt load alleviated in some way.

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Speaker 4: Yeah, I'm in favor of a negative recovery.

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Speaker 2: Okay, all right, Well, we really do have the perfect

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Speaker 2: guests to talk about all of this. Someone we've had

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Speaker 2: on the show before, but it's been a while. We're

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Speaker 2: going to be speaking with Lee Buchhait. He is a

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Speaker 2: retired lawyer. Now he's had a forty year legal career,

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Speaker 2: worked on more than two dozen sovereign debt restructurings, including

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Speaker 2: Greece and Iraq, and that's going to be relevant to

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Speaker 2: this conversation. So really the perfect guest, Lee, welcome back

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Speaker 2: to the show.

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Speaker 5: Thank you, Tracy and Joe. Good to be back.

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Speaker 6: Maybe just to begin, can you sort of set out

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Speaker 6: the scene of the creditors and the debt that Venezuela

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Speaker 6: actually owes, who owns those bonds and how much debt

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Speaker 6: are we talking.

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Speaker 5: About in total? Probably now, the Venezuelan debt is someplace

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Speaker 5: between one hundred and fifty and one hundred and seventy billion,

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Speaker 5: not all of that is bonds, and that's one of

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Speaker 5: the issues that we should discuss. The bonds that we're

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Speaker 5: talking about are principally Republic of Venezuela and petavasive bonds

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Speaker 5: roughly split fifty to fifty. They were issued during the

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Speaker 5: Chavez and early Maduro periods. They went into default, all

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Speaker 5: of them in the fall of twenty seventeen. You remember,

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Speaker 5: mister Trump in his first term, imposed sanctions on Venezuela

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Speaker 5: in August of twenty seventeen. The response was to have

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Speaker 5: the bombs go into default, and they have remained in

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Speaker 5: default since then. One of the difficulties that Venezuela will

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Speaker 5: face in restructuring, it's what I call legacy debt stock,

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Speaker 5: is that there are all kinds of other liabilities that

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Speaker 5: are not in the form of bonds. So there are

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Speaker 5: unpaid trade creditors, there are holders of arbitration awards, chunky

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Speaker 5: arbitration awards, there are people with blocked deposits in Venezuela,

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Speaker 5: and so the restructuring, when and if it comes, will

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Speaker 5: not be the simple, homogeneous kind of restructuring that we're

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Speaker 5: used to where there are bonds or in the old days.

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Speaker 5: This is going to be a much more diverse creditor group.

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Speaker 4: Is there a formal hierarchy that exists, either in written

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Speaker 4: law or in norms that sort of establish who comes

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Speaker 4: first when we have these multitude of instruments, or is

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Speaker 4: it the type of thing where the conditions of each country,

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Speaker 4: depending on what they are, et cetera. And maybe the

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Speaker 4: conventions not necessarily written down the same way in formal law,

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Speaker 4: will help sort of determine that waterfall.

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Speaker 5: I suppose nothing in law, but in convention, debts extended

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Speaker 5: by the multilateral institutions, the IMF, the World Bank, the

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Speaker 5: Inter American Development Bank, that sort of thing, are treated

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Speaker 5: as preferred creditors, so they will not be restructured in

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Speaker 5: a formal sense. Once you come down from that level,

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Speaker 5: then you have government debts, so you know, debts extended

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Speaker 5: by France, Germany, the United States typically for export encouragement,

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Speaker 5: and then commercial debts and that can be bonds, bank loans,

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Speaker 5: and these various other sorts of things. They all rank equally. Okay, Now,

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Speaker 5: the government creditors would like you to believe that they

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Speaker 5: have some kind of intermediate seniority, but in fact they don't.

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Speaker 2: So Joe touched on this in his emotional intro.

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Speaker 4: I was expecting to get so editated. But it's like,

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Speaker 4: we're calling this guy an arco terrorist and they have

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Speaker 4: to pay back his debt.

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Speaker 2: There's an inconsistency there, sure, Lee, what about the old

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Speaker 2: odious debt argument, This idea that if debt is issued

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Speaker 2: by I guess an odious regime or an illegitimate regime

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Speaker 2: of some sort, then maybe you don't have to pay

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Speaker 2: back at all.

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Speaker 5: Yeah, this is a very sensitive area, tracy. International law

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Speaker 5: is very strict in saying that governments succeed to inherit

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Speaker 5: the obligations of their predecessors, and no matter how different

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Speaker 5: in political philosophy, one administration may be from another. So

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Speaker 5: the Bolsheviks takeover from the Czar in nineteen seventeen, international

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Speaker 5: law says the Bolsheviks have got to honor the debt.

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Speaker 5: Napoleon Bonaparte honored the debts of the Bourbon monarchs that

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Speaker 5: he followed. The exception. There are very limited exceptions to that.

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Speaker 5: One of them that was first talked about in the

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Speaker 5: early part of the twentieth century was odious debts. In

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Speaker 5: its original formulation, that meant a debt incurred by a

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Speaker 5: dictatorial regime where the proceeds were not used for the

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Speaker 5: benefit of the citizenry of debtor country, and where the

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Speaker 5: creditor knew or should have known that the dictator was

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Speaker 5: going to steal the money. So it was a pretty

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Speaker 5: narrow category. It was resurrected in two thousand and three

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Speaker 5: in the context of Saddam's Iraq, and there was a

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Speaker 5: push there by, among others, many in the George W.

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Speaker 5: Bush administration who wished to have Saddam's debts disavowed on

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Speaker 5: the basis that they were odious. My view at the

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Speaker 5: time was that that was ill advised, that the doctrine

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Speaker 5: of odious that is sufficiently gauzy that it is not

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Speaker 5: something that the international community could have endorsed, because once

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Speaker 5: you start down that road, there are a lot of

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Speaker 5: sketchy characters out there whose debts you might want to disavow.

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Speaker 5: So my view at that time was that Iraq would

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Speaker 5: be able to achieve very significant debtorately without unfurling the

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Speaker 5: banner of odious debt.

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Speaker 4: Can you explain a little bit more what you see

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Speaker 4: as the negative consequences of this notion of Odio's debt,

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Speaker 4: because I think a lot of people just maybe their heartstrings,

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Speaker 4: they're like, yes, we should start using this principle. Saddam

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Speaker 4: bad The lenders him probably had a reason to think he.

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Speaker 5: Was a bad guy.

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Speaker 4: What do you see as the cost of introducing this

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Speaker 4: concept into sort of sovereign debt law or norms.

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Speaker 5: Yeah, Joe, I entirely understand the emotional argument. It strikes

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Speaker 5: most people as reprehensible. Yeah, that you could have a dictatorial,

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Speaker 5: kleptomaniacal regime that signs the contract on behalf of the

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Speaker 5: Republic of rh and when that son of a bachelor

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Speaker 5: exits the stage, the poor people of Ortaine, you've got

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Speaker 5: to repay that debt. That's the emotional argument. The other

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Speaker 5: side of it is what constitutes an odious debt. You

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Speaker 5: can have an odious regime that borrows money to build

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Speaker 5: a children's cancer hospital. On the other hand, you can

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Speaker 5: have a democratically elected regime that borrows money to finance

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Speaker 5: a terrorist organization. What happened in the Iraq situation was

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Speaker 5: the Bush team really would have defined it as any

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Speaker 5: debt incurred by an odious regime. Okay, even if you

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Speaker 5: take that, tell me what is an odious regime? Is

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Speaker 5: it one that makes war on its neighbors. Yes, probably.

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Speaker 5: Is it one that is insufficiently at tune to environmental factors?

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Speaker 5: Is it one that misprizes women, tell me what's odious?

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Speaker 5: And once you start down that road, pretty hard to

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Speaker 5: find a regime that would, to everyone's satisfaction, be regarded

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Speaker 5: as virtuous.

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Speaker 2: Talk a little bit more about the Iraq restructuring, because

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Speaker 2: this seems to be the previous sovereign debt restructuring that

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Speaker 2: people are drawing a lot of parallels to with Venezuela.

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Speaker 2: So you have an oil producing countryting as we've been discussing,

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Speaker 2: under an authoritarian regime, to put it mildly terrorist. Yeah, okay, Well,

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Speaker 2: Saddam Hussein was never a narco terrorist, was he? No?

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Speaker 4: No, I don't know, Yeah, I don't remember.

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Speaker 5: Like narco terrorism is probably one of the few sins

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Speaker 5: that Saddam did not commit.

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Speaker 2: Yeah, yeah, okay, a point in his favor. Talk about

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Speaker 2: the parallels here. Can we look at the Iraq sovereign

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Speaker 2: debt restructuring, which I think ended up being something like

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Speaker 2: ten cents on the dollar for creditors? Is that the

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Speaker 2: guiding light here? Would you expect Venezuela to follow a

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Speaker 2: similar path?

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Speaker 5: No? No, Iraq was unusual for this reason. You remember

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Speaker 5: that George W. Bush, George the Second, put together a

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Speaker 5: coalition of forty some countries. Saddam was ousted after a

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Speaker 5: full invasion of the country. So the country was run

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Speaker 5: by the Coalition Provisional Authority, largely led by the United States,

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Speaker 5: but the Brits were there and there were some others.

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Speaker 5: They really did run the country, not in the way

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Speaker 5: Donald Trump says he runs Venezuela. At that point, the

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Speaker 5: Coalition Provisional Authority really did run it. The Bush team

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Speaker 5: really wanted that experiment to succeed. They wanted a stable,

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Speaker 5: democratic Iraq right in the middle of the Middle East,

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Speaker 5: someone that would support Israel when that became necessary. They

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Speaker 5: wanted a bulwark against Iran, and they really wanted it

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Speaker 5: to succeed. And their perception at the time, this is

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Speaker 5: now two thousand and three four, was that this miasmic

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Speaker 5: cloud of debt that Saddam had accumulated and ceased paying,

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Speaker 5: by the way in nineteen ninety when the Security Council

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Speaker 5: put sanctions on him, that debt stock would effectively keep

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Speaker 5: anyone from investing in Iraq, lending it money, and so forth.

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Speaker 5: So it was viewed by the Bush people as a

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Speaker 5: major obstacle to the economic recovery of Iraq, and so

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Speaker 5: they issued the mandate deal with that debt stock in

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Speaker 5: the most expeditious way possible. And as far as they

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Speaker 5: were more of Joe's view that they didn't like Saddam

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Speaker 5: Hussein and they didn't like anyone who lent money to

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Speaker 5: Saddam Hussein, so they had little sympathy for the creditors.

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Speaker 5: The United States had a very limited exposure, so this

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Speaker 5: was a relatively harmless position for the US government to take.

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Speaker 5: Their initial proposal was to go and say, the debt

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Speaker 5: is odious, let's write off one hundred percent of it.

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Speaker 5: And we went to the Paris Club, the group that

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Speaker 5: negotiates governmental intergovernmental debt, I think, with a proposal to

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Speaker 5: write off ninety five percent of it. In the end,

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Speaker 5: eighty percent of it was written off, and that was

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Speaker 5: absolutely extraordinary for a middle income country that sits on

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Speaker 5: the fourth largest oil reserves in the world. But that

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Speaker 5: was the mindset of the Bush people. I don't see

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Speaker 5: Donald Trump having any particular solicitude for the citizens of Venezuela.

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Speaker 5: In solicitude seems to be for the oil companies and

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Speaker 5: perhaps for the US government itself. That's interesting.

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Speaker 4: I mean, who are we as supposed to speculate into

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Speaker 4: Donald Trump's mind? Because on the other hand, you know,

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Speaker 4: it's like, well, a fifty seven dollars a barrel? Do

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Speaker 4: the oil companies want to spend tens of billions of

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Speaker 4: dollars rebuilding this? Do they want even cheaper oil right now?

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Speaker 4: Which would presumably happen if the tabs turn on in Venezuela.

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Speaker 5: Unclear.

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Speaker 4: Setting all that aside, and maybe we'll get a little

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Speaker 4: bit more to Donald Trump mind reading in a moment,

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Speaker 4: What do we know about the holders of Venezuelan debt

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Speaker 4: or peavesad? Are we able to tell what type of

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Speaker 4: institutions or entities are currently holding it?

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Speaker 2: Joe, There's a function on the terminal called HGS, which

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Speaker 2: stands for holdings and you can look it up.

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Speaker 4: Okay, Well, but I'll leave it to lead. Yeah, levers

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Speaker 4: the terminal.

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Speaker 5: No, it's mostly traded into the hands of hedge bumps.

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Speaker 1: Okay.

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Speaker 5: In January of twenty nineteen, mister Boshin is first term

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Speaker 5: imposed a restriction that prevented US residents from buying Venezuelan

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Speaker 5: debt or even selling it to themselves. They could sell

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Speaker 5: it overseas, and so some of it was sold off.

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Speaker 5: But as Tracy said in her introductory or remarks, in

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Speaker 5: those days, this debt was trading seven eight nine cents

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Speaker 5: on the dollar. But as with most sovereign debt restructurings,

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Speaker 5: when the debt is in the form of bonds, freely

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Speaker 5: tradable bonds, you don't actually know who owns it till

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Speaker 5: such time as you make an offer to restructure it.

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Speaker 4: Just real quickly as a follow up, does it matter? Okay,

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Speaker 4: maybe people don't have a lot of sympathy for hedge

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Speaker 4: funds that are picking up distressed debt two cents or

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Speaker 4: five cents on the dollar, or maybe people feel differently

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Speaker 4: about some entity that I don't know is managed just

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Speaker 4: conservatively managing sovereign debt for widows and orphans, so to speak.

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Speaker 4: But from the perspective of international law or New York

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Speaker 4: law or sovereign debt restructuring law, does the composition of

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Speaker 4: the creditor group bear into this at all?

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Speaker 5: No, the claim is the claim where it is relevant,

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Speaker 5: Joe is in the negotiation of the debt. If I

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Speaker 5: sit across from someone who paid ten cents for their claim,

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Speaker 5: and I offer them twenty cents, I'm a hero. But

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Speaker 5: if I sit across from in the old days a

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Speaker 5: banker who lent a hundred cents and I offer him

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Speaker 5: twenty cents, I'm a heel. And so it plays into

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Speaker 5: the negotiation in that sense.

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Speaker 2: Would you expect the US Treasury to be heavily involved

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Speaker 2: in these negotiations, just in terms of the actual process,

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Speaker 2: the legal process.

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Speaker 5: Not nearly as much as George Bush's Treasury was back

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Speaker 5: in two thousand and four and five. The US Treasury

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Speaker 5: has always had an interest since nineteen eighty two, when

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Speaker 5: Mexico began the modern era of sovereign debt WORKOUTSI has

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Speaker 5: always had an interest in seeing these problems dealt with

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Speaker 5: in a consensual, negotiated way. So I would expect if

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Speaker 5: and when the time comes, they would encourage both the

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Speaker 5: Venezuelan administration and the holders of Venezuela's debts to negotiate

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Speaker 5: them in a consensual way.

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Speaker 4: Well, actually, let me back up. I mean, we're talking

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Speaker 4: about these negotiations, and the market is clearly reflecting some

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Speaker 4: expectations of a change. But does the arrest the rendition

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Speaker 4: of Maduro make that inevitable? Does this have to happen

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Speaker 4: or is it possible that again, because his vice president.

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Speaker 2: Is currently the same regime.

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Speaker 4: It's the same regime which seems to be Trump seems

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Speaker 4: to be okay with because for whatever reason, you can

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Speaker 4: only speculate what kind of conversations they've had in the

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Speaker 4: background and so forth. But is there an inevitability to

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Speaker 4: these negotiations? Is there a formal starting gun? Is there

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Speaker 4: a reason that they ever have to happen, or could

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Speaker 4: Venezuela just stay on default and sort of model through

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Speaker 4: without any resolution to the dead question.

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Speaker 5: I don't think they can stay in default indefinitely, but

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Speaker 5: there is no starting gun. As a matter of fact,

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Speaker 5: what has prevented a restructuring of Venezuela's dead since twenty

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Speaker 5: seventeen has been the sanctions imposed by the US government.

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Speaker 2: Yeah, this is funny. So you can't even sit down

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Speaker 2: and begin to talk about a restructuring because you'd be

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Speaker 2: in violation of sanctions.

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Speaker 5: Yeah, and so those sanctions would have to be relaxed.

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Speaker 5: And that decision ultimate least, it's with mister Trump, and

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Speaker 5: he may or may not decide that the removal of

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Speaker 5: Maduro is a sufficient basis on which to begin relaxing sanctions,

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Speaker 5: but I don't think so on the current path. He

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Speaker 5: will want to see a complacent regime in Caracas. He

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Speaker 5: has said as much. The president of Venezuela has got

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Speaker 5: to be someone who follows the orders of Donald John Trump,

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Speaker 5: and he said that if they are sufficiently complacent, then

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Speaker 5: perhaps he will begin relaxing sanctions, perhaps allowing a deprastructuring

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Speaker 5: to go forward. What has changed and what will be

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Speaker 5: different this time is if you listen to the President's

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Speaker 5: speech last weekend, he didn't talk about democracy. He made

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Speaker 5: a passing reference to wanting to see Venezuela made great again,

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Speaker 5: but his principal focus was on the oil companies. He

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Speaker 5: wants them pumping oil, and to that end, in a fact,

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Speaker 5: said we will make sure that your claims for expropriation,

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Speaker 5: which occurred in the Chavez era are getting paid. And

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Speaker 5: if he is true to what he said. Back when

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Speaker 5: George Bush was in Iraq, Donald Trump criticized Bush for

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Speaker 5: not having taken Iraqi oil to pay for the costs

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Speaker 5: of the invasion, and so I expect he will say

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Speaker 5: this time that Uncle Sam is entitled to be recompensed

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Speaker 5: for the cost of keeping that naval armada in the Caribbean. So,

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Speaker 5: in a restructuring, the waterfall, which is normally a squabble

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Speaker 5: between the citizens of the country and the creditors of

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Speaker 5: the country. In this case, there may be people at

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Speaker 5: the top, and maybe US government is at the very top,

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Speaker 5: and oil companies come next, and then the squabble between

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Speaker 5: citizens and predators.

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Speaker 2: One thing I've learned in my life and job is

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Speaker 2: that lawyers are nothing if not creative. So I'm wondering,

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Speaker 2: is there some sort of creative solution that could at

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Speaker 2: least help, perhaps on the margin the Venezuelan debt load,

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Speaker 2: while I guess preserving the goodwill so to speak, of investors.

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Speaker 2: So I'm thinking, you know, maybe they get an extension

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Speaker 2: instead of a haircut, or maybe you have something like

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Speaker 2: the Mexico situation where you have new loans but those

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Speaker 2: fall under different treatment to the older debt. Something like that.

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Speaker 5: Yeah, Look, a couple of things. First, the oil infrastructure

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Speaker 5: in this country has been badly degraded. It's going to

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Speaker 5: take two to five years, I think of significant investment

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Speaker 5: to bring that infrastructure up to the point where Venezuela

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Speaker 5: is pumping what it was pumping, say back in twenty sixteen,

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Speaker 5: maybe three million barrels a day. So this is not

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Speaker 5: going to happen overnight that there's a huge influx of revenues.

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Speaker 5: Second point, if mister Trump is true to his word,

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Speaker 5: first dims on those revenues will go to the oil

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Speaker 5: companies who are making these investments. Third, some money is

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Speaker 5: going to have to be used to have a discernible

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Speaker 5: improvement in the lives of Venezuelan citizens. Otherwise the regime

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Speaker 5: that's in power will be very fragile. So you're talking

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Speaker 5: about years in which most of this money is going

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Speaker 5: to have to go places other than into the pockets

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Speaker 5: of legacy bondholders. What I would expect, therefore, is that

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Speaker 5: the bondholders will ask for what is generically called a

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Speaker 5: value recovery instrument. This is a country that derives ninety

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Speaker 5: five percent of its foreign currents earnings from the sale

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Speaker 5: of a commodity oil, So the logical thing would be

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Speaker 5: for the bondholders to say, give us an instrument that

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Speaker 5: is a play on the oil market. That was done

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Speaker 5: by the way in the early nineties during the so

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Speaker 5: called Brady initiative. You had oil exporters Mexico, than is

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Speaker 5: Whal Nigeria, and they sweetened their Brady restructurings by giving

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Speaker 5: oil warrants that would pay off if oil exceeded a

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Speaker 5: certain strike price in the future. Mexico Is issued in

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Speaker 5: nineteen ninety had the strike price set at the enormous

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Speaker 5: level of fourteen dollars a barrel. But I would expect

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Speaker 5: that that will be the fudge factor in a Venezuelan restructuring.

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Speaker 5: You're right that most payments will have to be deferred

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Speaker 5: for quite a long time, but an oil instrument is

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Speaker 5: likely to be part of the mix.

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Speaker 4: When are we're talking about international law with respect to

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Speaker 4: sovereign deet, what law are we actually talk about? Because

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Speaker 4: I know often they talk about New York law where

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Speaker 4: a lot of bonds actually get issued or they go

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Speaker 4: through the banks there, whatever. So when you talk about, okay,

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Speaker 4: international law says this that, or what about what corpus

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Speaker 4: of law are we actually talking about here and what

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Speaker 4: law is relevant to the Venezuelan debt.

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Speaker 5: Yeah, the debt instruments themselves will be issued under the

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Speaker 5: law of a municipal jurisdiction. Ninety five percent of sovereign

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Speaker 5: emerging markets. Sovereign debt is issued under the law of

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Speaker 5: either New York or England. In Venezuela's case, it's all

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Speaker 5: New York law. When I say international law, that's not

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Speaker 5: the law applicable to the contract. That's really the law

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Speaker 5: applicable to the governments that form part of the international system.

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Speaker 5: So it will be New York law in the case

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Speaker 5: of Venezuela.

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Speaker 2: But just on this note, I know there's been chatter

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Speaker 2: for a long time now about creating some sort of

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Speaker 2: common framework when it comes to sovereign debt restructurings. Is

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Speaker 2: that at all realistic at this point in time or

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Speaker 2: is it still sort of pie in the sky thinking.

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Speaker 5: That idea was first broached back at the time of

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Speaker 5: the Argentine default in December of two thousand and one,

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Speaker 5: and it was actually promoted by the IMF. They called

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Speaker 5: it the sovereign debt restructuring mechanism. They reasoned as follows.

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Speaker 5: In corporate debt workouts under bankruptcy municipal bankruptcy laws, if

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Speaker 5: a supermajority of the creditors agree to restructuring, their decision

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Speaker 5: binds any dissenting minority sovereigns are not subject to a

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Speaker 5: bankruptcy law, and so sovereign debt workouts have been characterized

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Speaker 5: by holdout creditors, that is, creditors that do not join

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Speaker 5: a voluntary debt restructuring and seek to pursue their legal remedies.

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Speaker 5: Argentina is all about this, Yes, do so. The IMF reasoned, well,

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Speaker 5: what we need is a Chapter eleven for sovereigns. That

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Speaker 5: idea died a political death because the Americans did not

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Speaker 5: support it, but it continues to have some vitality, and

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Speaker 5: bills have been introduced over the last few years into

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Speaker 5: the New York legislature, one of them suggesting that perhaps

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Speaker 5: New York, whose law governs many of these debt instruments,

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Speaker 5: should itself put in place a kind of Chapter eleven process.

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Speaker 5: It hasn't gotten much traction. I don't think that that will.

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Speaker 5: Why not, ah for a bunch of reasons that there

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Speaker 5: are aspects of sovereign debt workouts that differ materially from

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Speaker 5: corporate debt workouts. Among other things, the court does not

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Speaker 5: control the foreign sovereign court. Foreign sovereign We're going to

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Speaker 5: liquidate you.

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Speaker 2: We're going to take the keys to well, I mean

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Speaker 2: keys to Venezuela kind of doing it exactly.

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Speaker 5: They can't say we're going to replace the management. Sovereigns

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Speaker 5: are sovereign, and that has always been the principal feature

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Speaker 5: of sovereign debt workouts is that you're dealing with debtors

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Speaker 5: who are not subject to any institutionalized bankruptcy regime. Therefore,

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Speaker 5: we've had to rely on consensual workouts. But I'm not

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Speaker 5: going to put too fine a point on the word consensual.

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Speaker 5: Sometimes there's been encouragement.

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Speaker 2: All right, we're going to have to leave it there.

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Speaker 2: But it's been so good to catch up with you.

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Speaker 2: Really the perfect guests for this particular time.

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Speaker 3: So thank you so much.

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Speaker 5: Okay, guys, thank you, Thanks Y.

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Speaker 7: That was fantastic, So good Thank you, Lee, Bye bye, Joe.

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Speaker 2: I really enjoyed that conversation. Lee has an incredible talent

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Speaker 2: for explaining things in very very clear language. But you know,

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Speaker 2: the thing that stuck out to me is, I guess

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Speaker 2: the contrast between sovereign versus corporate debt. Yeah, you know,

436
00:31:33,600 --> 00:31:35,560
Speaker 2: he talked about it at the end, this idea that

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00:31:35,840 --> 00:31:39,440
Speaker 2: you can't really have a sort of standardized bankruptcy process

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00:31:39,520 --> 00:31:42,720
Speaker 2: for a sovereign as you do with a corporate because

439
00:31:43,640 --> 00:31:45,240
Speaker 2: sovereigns are sovereign, you can't.

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00:31:45,080 --> 00:31:46,000
Speaker 5: Have like a new equity.

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00:31:46,160 --> 00:31:48,880
Speaker 4: It's like and now the and now the country goes

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00:31:48,920 --> 00:31:50,840
Speaker 4: to the equity holders, right, because that's what happens in

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00:31:50,880 --> 00:31:51,320
Speaker 4: a company.

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00:31:51,400 --> 00:31:51,560
Speaker 2: Right.

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00:31:51,720 --> 00:31:53,760
Speaker 4: So it's like, oh, all that, you know what, all

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00:31:53,880 --> 00:31:55,800
Speaker 4: the debtors get a haircut and there's a new they

447
00:31:55,800 --> 00:31:58,880
Speaker 4: become equity holders, right, the debtors. What would that even

448
00:31:58,960 --> 00:32:02,000
Speaker 4: mean in the sovereign concept for the debtors to become

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00:32:02,040 --> 00:32:05,760
Speaker 4: equity holders except to some extent to his point, which

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00:32:05,760 --> 00:32:07,560
Speaker 4: I thought was interesting, is like, okay, you could have

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00:32:07,560 --> 00:32:11,200
Speaker 4: an oil LinkedIn yeah, but not every country that gets

452
00:32:11,200 --> 00:32:13,840
Speaker 4: in trouble is going to have like a very really

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00:32:13,880 --> 00:32:16,520
Speaker 4: saleable commodity such as oil.

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00:32:16,800 --> 00:32:17,480
Speaker 5: Yeah.

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00:32:17,520 --> 00:32:19,760
Speaker 2: And also just I talked about this in the intro.

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00:32:19,880 --> 00:32:23,480
Speaker 2: But the idea of that is a human construct, like

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00:32:23,520 --> 00:32:27,160
Speaker 2: it doesn't actually exist except in our minds and so.

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00:32:27,640 --> 00:32:29,880
Speaker 4: And on the pages of the terminal.

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00:32:29,600 --> 00:32:32,120
Speaker 2: And on the pages of the terminal of course, so

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00:32:32,520 --> 00:32:34,480
Speaker 2: it can change over time, and there are all these

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00:32:34,600 --> 00:32:38,120
Speaker 2: values embedded in it. And one man's legitimate regime is

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00:32:38,160 --> 00:32:42,520
Speaker 2: another man's or another investor's dictatorship, and it seems very

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00:32:42,560 --> 00:32:45,600
Speaker 2: hard to litigate that in a public court totally.

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00:32:45,680 --> 00:32:50,040
Speaker 4: How you define odious? How do you define an odious regime?

465
00:32:50,200 --> 00:32:54,800
Speaker 4: How do you define what are appropriate proceeds and inappropriate proceeds?

466
00:32:55,280 --> 00:32:59,920
Speaker 4: Clearly extremely difficult, and of course sure maybe do you

467
00:33:00,200 --> 00:33:04,000
Speaker 4: government right now, we'll say Maduro, Narco, terrorists, et cetera.

468
00:33:04,080 --> 00:33:07,600
Speaker 4: But that is just the perspective of the Department of Justice,

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00:33:07,720 --> 00:33:11,800
Speaker 4: which has which has filed charges against Maduro whatever, whether

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00:33:11,880 --> 00:33:15,160
Speaker 4: that's some objective reality difficult. By the way, I love

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00:33:15,240 --> 00:33:18,479
Speaker 4: that episode. I would have rather not asked any questions

472
00:33:18,480 --> 00:33:22,280
Speaker 4: and just listen to Lee talks for the.

473
00:33:21,520 --> 00:33:24,200
Speaker 2: The perfect radio voice. We're going to get him to

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00:33:24,320 --> 00:33:27,560
Speaker 2: narrate something. I think now that he's retired, he has

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00:33:27,600 --> 00:33:30,479
Speaker 2: some time he can narrate our next long form episodes.

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00:33:30,560 --> 00:33:34,040
Speaker 4: Yeah, maybe we should do like a three part series ong.

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00:33:34,160 --> 00:33:38,560
Speaker 2: Just be we tell stories about, you know, being across

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00:33:38,600 --> 00:33:40,760
Speaker 2: the table from various creditors.

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00:33:40,920 --> 00:33:45,720
Speaker 4: I love representing various failed governments or post failed governments

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00:33:45,880 --> 00:33:48,520
Speaker 4: or unsavory care Yes, that sounds great.

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00:33:48,560 --> 00:33:49,880
Speaker 3: All right, shall we leave it there.

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00:33:49,960 --> 00:33:50,640
Speaker 5: Let's leave it there.

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00:33:50,760 --> 00:33:53,120
Speaker 2: This has been another episode of the All Thoughts podcast.

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00:33:53,160 --> 00:33:55,920
Speaker 2: I'm Tracy Alloway. You can follow me at Tracy Alloway.

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00:33:56,040 --> 00:33:57,240
Speaker 5: And I'm Joe Wisenthal.

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00:33:57,280 --> 00:33:59,959
Speaker 4: You can follow me at the Stalwart. Follow our producer

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00:34:00,000 --> 00:34:02,760
Speaker 4: Here's Carmen Rodriguez at Kerman armand dash Ol Bennett at

488
00:34:02,800 --> 00:34:06,120
Speaker 4: Dashbot and Keil Brooks at Kalebrooks. For more Odd Lots content,

489
00:34:06,160 --> 00:34:08,320
Speaker 4: go to Bloomberg dot com slash odd Lots with the

490
00:34:08,440 --> 00:34:11,000
Speaker 4: daily newsletter and all of our episodes, and you can

491
00:34:11,040 --> 00:34:13,160
Speaker 4: shout about all of these topics twenty four to seven

492
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Speaker 4: in our discord discord gg slash out Lots.

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00:34:17,160 --> 00:34:19,359
Speaker 2: And if you enjoy Odd Lots, if you want us

494
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Speaker 2: to have Lee come back and talk for three hours

495
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498
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Speaker 2: All you need to do is find the Bloomberg channel

500
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Speaker 2: on Apple Podcasts and follow the instructions there.

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Speaker 3: Thanks for listening. In a