On October 6, OFAC issued General License 5E, Authorizing Certain Transactions Related to the Petróleos de Venezuela, S.A. 2020 8.5 Percent Bond on or After January 19, 2021 (“GL-5E”).
GL-5E appears intended to protect bondholders of CITGO Holding, Inc. (“Citgo”), which is a wholly owned subsidiary of Venezuela’s state-owned oil and natural gas company, Petróleos de Venezuela, S.A. (“PdVSA”). PdVSA pledged a majority stake in Citgo as collateral for its 2020 bond, which is now in default. In several lawsuits throughout the US court system, Venezuela’s creditors have tried to collect on certain debts by seizing Citgo assets.
However, Executive Order (“E.O.”) 13835, dated May 21, 2018, prohibits US persons from engaging in transactions related to the sale, transfer, assignment, or pledging as collateral by the Government of Venezuela (“G.O.V.”) of any equity interest in an entity owned 50% or more by the G.O.V. E.O. 13835 requires US persons to request OFAC authorization before engaging in certain transactions related to equity interests in an entity owned 50% or more by the G.O.V., such as Citgo. Thus, any creditor seeking to seize Citgo assets would need specific approval from OFAC.
On July 19, 2018, OFAC issued General License 5, Authorizing Certain Transactions Related to the Petroleos de Venezuela SA 2020 8.5 Percent Bond (“GL-5”). GL-5 authorized all transactions related to, the provision of financing for, and other dealings in the PdVSA 2020 8.5% Bond. GL-5 permitted the holders of the PdVSA 2020 8.5% bond to take action with respect to their collateral, which would have otherwise been prohibited by Subsection l(a)(iii) of E.O. 13835. GL-5 is available here.
Now, GL-5E will replace and supersede GL-5. The authorization described in GL-5E is nearly identical to the authorization described in GL-5; however, GL-5E will not become effective until January 19, 2021. Accordingly, between October 24, 2019 and January 19, 2021, there is no applicable OFAC authorization for any transactions related to the sale or transfer of Citgo shares, and a specific license from OFAC would be required for any such transaction. In effect, GL-5E delays US persons’ ability to enforce bondholder rights to the Citgo shares, serving as collateral for the PdVSA 2020 8.5% bond, until on or after January 19, 2021. GL-5E is available here.
On October 6, OFAC also published an amended Frequently Asked Question, FAQ 595, which clarifies the scope of GL-5E. OFAC also noted that, to the extent an agreement may be reached on proposals to restructure or refinance payments due to the holders of the PdVSA 2020 8.5% bond, additional licensing requirements may apply. Finally, OFAC encouraged parties to apply for a specific license in the context of any settlement of bondholder claims, and suggested that it would have a favorable licensing policy toward such an agreement. FAQ 595 is available here.