The Last Sovereign Bond in New York

Due to litigation over the PDVSA 2020 bond, all future issues of sovereign bonds in New York have been canceled, effective immediately. (PDVSA is quasi-sovereign, but whatever...) You may have heard that New York’s highest court has ruled that investors cannot enforce sovereign bonds, period. Well, maybe that's not quite what it held – okay, not even remotely – but it is how some in the market are reacting. In fact, the New York Court of Appeals did nothing unusual. It held that Venezuelan law decides whether the collateral pledge backing the PDVSA 2020 bonds is valid but that, even if invalid, New York law will decide whether and how this affects investors. Some are complaining that this ignores the contractual choice of law provision designating New York's law as governing. But if investors are surprised, they shouldn't be, and there is nothing unique or strange about New York's conflicts law. Anyway, no one has said the bond is unsecured. No need for all the bedwetting.

Producer: Leanna Doty