Bloomberg — Centerview Partners remained in negotiations with Venezuela until last month over a contract worth at least $150 million for its work as the country’s exclusive financial advisor in a debt restructuring process. This figure would far exceed the fees paid in previous sovereign debt operations, according to a draft agreement reviewed by Bloomberg.
The draft contract included a fee equal to 0.1% of the total debt if the restructuring succeeded, with no monetary cap. Wall Street analysts estimate Venezuela’s debt at between $150 billion and $200 billion, which would place the fee between $150 million and $200 million.
The document also contemplated a monthly retainer of $750,000, plus expenses, for work that includes preparing economic analyses, developing a negotiation strategy with creditors, and serving as a liaison with multilateral institutions.
Several people familiar with the negotiations told Bloomberg that the parties were still discussing the contract in the days leading up to the May 13 announcement that awarded the mandate to Centerview. One of those individuals said the final agreement retained the same financial terms. The draft contract stated that the parties could revise those terms.
Centerview, a specialized investment bank headquartered in New York, disputed the figures.
“The contract has not yet been finalized, and the figures referenced in this article greatly overstate the anticipated terms of the agreement between Centerview and the Republic of Venezuela,” the firm said in a statement on Thursday.
“Centerview’s fees will align with market rates for transactions of this nature and complexity and will reflect the government’s consultation with multiple parties,” the firm added. “Their structure directly aligns with the Republic’s strategic objective of achieving a comprehensive and sustainable restructuring of its external public debt.”
One of the largest sovereign debt restructurings
The firm will play a central role in a process that is shaping up to become one of the most complex and costly restructuring efforts ever attempted. Venezuela’s debt burden has grown through a combination of defaulted bonds, unpaid loans, arbitration awards granted to multinational corporations, and other claims.
The country, which has not published reliable debt statistics in years, seeks to regain access to international capital markets after nearly a decade in default.
Centerview Partners France, home to the firm’s sovereign advisory division, sent the draft agreement to Venezuela’s Ministry of Finance. A compensation package of that magnitude would significantly exceed the fees paid to advisors in some of the largest and most complex sovereign debt restructurings in history, including Greece’s restructuring, which remains the largest sovereign debt restructuring ever recorded.
Although financial advisory work often generates multimillion-dollar payments, advisors generally agree to fee caps to protect governments if negotiations become prolonged or if debt burdens prove larger than expected, according to bankers, academics, and restructuring specialists.
International advisory team
Blair Effron and Robert Pruzan founded Centerview in 2006. The firm is best known for its corporate mergers and acquisitions advisory work in the United States. It later expanded into sovereign advisory services by hiring former Lazard bankers, including Matthieu Pigasse and Hamouda Chekir.
Pigasse, a former senior French finance official, advised major European corporations such as L’Oréal and Carrefour, while also participating in government debt restructurings in Greece and Argentina.
Venezuela has also hired Hogan Lovells as legal counsel for a potential restructuring and for lobbying services in the United States. According to documents published this month, the agreement includes hourly billing and a monthly retainer of $100,000.
The restructuring will require negotiations with a broad group of creditors whose interests often conflict. These include holders of defaulted bonds issued by the government and by PDVSA, bilateral lenders such as China, multilateral institutions, and companies such as ConocoPhillips that seek compensation for expropriated assets.
The government plans to prepare economic reports and a debt sustainability analysis that will help determine potential recoveries for bondholders and other creditors. Venezuela’s sovereign bonds currently trade above 50 cents on the dollar after more than doubling in value over the past year.
That level implies that investors expect to recover roughly 30% of their total claims once unpaid accrued interest is included.
Centerview is expected to help prepare economic assessments and facilitate cooperation with multilateral lenders such as the International Monetary Fund. The IMF, which normally gathers its own data, has not conducted a formal analysis of Venezuela in two decades.
At the negotiating table, Centerview is expected to face a bondholder group that includes Fidelity Management & Research, Greylock Capital Management, and T. Rowe Price, with advisory support from Houlihan Lokey.
