Sovereign Debt Restructuring and Contracts of Public Interest

A sovereign debt restructuring is typically negotiated as a market-standard transaction—governed by New York law, utilizing fiscal agents, and incorporating collective action clauses—but there is a risk that its ultimate legal validity will be decided in Caracas. The core issue at hand is not financial, but constitutional: determining whether newly issued debt instruments qualify as "contracts of national public interest" (contratos de interés público nacional) and identifying the legal consequences of that determination.

Much has been written and debated on this topic over the years. The primary challenge is that the dividing line is far from clear, with both legal scholars and the Supreme Court of Justice (Tribunal Supremo de Justicia) adopting divergent positions. The practical rule is straightforward: do not assume your instrument falls outside this category. In an unsettled jurisprudential landscape, the risk is total nullity.

The three special requirements for contracts of national public interest:

1. Approval by the National Assembly (Articles 150 and 187(9) CRBV).

2. Prior opinion from the Attorney General’s Office (Article 247 CRBV; Article 11 LOPGR).

3. Submission to Venezuelan law and local courts, unless inapplicable given the specific nature of the contract (Calvo Clause) (Article 151 CRBV).

Practical recommendations:

- Characterize each instrument in the transaction menu at the outset of the structuring stage—not at closing.

- Treat all constitutional requirements as conditions precedent to the exchange.

Conclusion

In light of conflicting legal doctrine and unsettled case law, the prudent course of action is to adopt the most conservative interpretation. Failure to comply with these requirements creates the distinct risk that a court—whether a Venezuelan or foreign court applying Venezuelan law—could declare the newly issued instruments null and void.

*This note is for informational purposes only and does not constitute legal advice.

If you have any questions or concerns regarding the above report, please do not hesitate to contact Rodolfo Belloso at rbelloso@lec.com.ve.