Venezuela: Is a default imminent?

Venezuela’s debt crisis is spiraling out of control, and the maturing of a $650 million utility bond is prompting concern over a potential default.

Venezuela stopped paying bondholders in September, according to The Financial Times, citing central bank data. That contradicts President Nicolas Maduro, who has said that the country would continue to honor its debts while negotiating a resettlement with creditors.

At risk for a default on Tuesday, according to Bloomberg, are notes from the state-run electric utility. These notes were always considered among the country’s riskiest, but they don’t contain any cross-default rules that would affect sovereign debt or notes from the state oil company. Further, if a default occurs, the utility doesn’t have any overseas assets that could be seized.

If the bond does get paid, investors who bought the notes now would make a quick 150% profit. Fitch has the notes rated one notch above default.

The collapse of the country’s socialist economy comes after decades of mismanagement, and the situation for the nation deteriorated further during the last oil bear market. Now, in an unfortunate twist as oil prices rally, the country’s economy has collapsed to the point where production of its precious resource has plunged.