Centerview Partners was in negotiations with Venezuela as recently as last month for a contract worth at least $150 million for its work as the sole financial adviser on the country’s debt restructuring, a sum that would far exceed payouts for past sovereign deals, according to a draft of the agreement seen by Bloomberg.
The draft contract included a fee of 0.1% of the total debt if the restructuring proves successful, without a monetary cap. Wall Street analysts estimate the country’s debt totals somewhere between $150 billion to $200 billion, which means the fee would amount to $150 million to $200 million.
In addition, the document called for a monthly retainer of $750,000, plus expenses, for work that includes preparing an economic analysis, developing a strategy for negotiating with creditors and acting as a conduit to multilateral institutions.
Multiple people familiar with the talks verified the contract was under negotiation in the days ahead of the May 13 announcement that Centerview was awarded the mandate. One of those people said the final agreement included the same financial terms. The draft contract stipulated that the terms could be revised.
Centerview, a boutique investment bank that has its headquarters in New York, disputed the figures.
“The contract has not been finalized and the numbers speculated on in this story vastly overstate the expected terms of Centerview’s engagement with the Republic of Venezuela,” said in a statement Thursday.
“Centerview’s fee will be in line with market rates for transactions of this nature and complexity and reflect the government’s consultation with multiple parties,” the firm said in a statement. “Its structure is directly aligned with the Republic’s strategic objective of achieving a comprehensive and sustainable restructuring of its external public debt.”
Economic Shadow
The firm will play a central role in a process that stands to rank among the most complex and costly sovereign workouts ever attempted.
Venezuela’s economy is a shadow of what it once was. A collapse in oil production a decade ago triggered hyperinflation and widespread poverty, forcing millions to flee the country. Its debt burden, meanwhile, ballooned through a mix of defaulted bonds, unpaid loans, arbitration awards handed to multinationals and other claims.
The country, which has stopped releasing reliable statistics on its debt, is pushing to re-establish access to international capital markets after nearly a decade in default.
The draft was sent to Venezuela’s finance ministry by Centerview Partners France, home to its sovereign advisory business.
A representative for the Venezuelan government, which has been led by Acting President Delcy Rodriguez since Nicolas Maduro’s removal by US forces in January, didn’t reply to messages seeking comment.
Compensation at those levels would dwarf payments to advisers on some of the largest and most complicated sovereign debt restructurings in the past, including Greece, which remains the largest government debt workout on record.
While financial advisory work routinely generates payouts in the millions of dollars, fees are typically capped to protect the governments if negotiations drag on or if debt loads prove larger than expected, according to bankers, academics and other restructuring advisers.
In Greece’s 2012 rework of more than $200 billion, Lazard’s payment was limited to $25 million . The fee structures for other major restructurings, including Ukraine and Argentina, weren’t made public.
Barbados’ 2018 agreement with its adviser drew criticism for its price tag. In that deal, White Oak Advisory was paid a monthly retainer of $85,000 and a success fee of as much as 0.45% to restructure around $7 billion of overseas and domestic debt, according to a copy of the agreement published by parliament. The final total wasn’t made public, but media reports at the time said it amounted to around $27 million.
Sovereign Advisory
Founded in 2006 by Blair Effron and Robert Pruzan, Centerview is best known for its work on corporate mergers and acquisitions in the US. It branched out into the sovereign advisory world by hiring former Lazard bankers, including Matthieu Pigasse and Hamouda Chekir.
Once a top French finance official, Pigasse worked with large European corporations like L’Oreal and Carrefour as well as on government restructurings in Greece and Argentina.
Venezuela has also tapped Hogan Lovells as legal counsel for a potential restructuring and lobbying services in the US, which includes a contract that pays an hourly fee and a monthly retainer of $100,000, according to documents made public this month.
Read more: Venezuela Hires Hogan Lovells as Counsel for Debt Rework
The restructuring will involve negotiations with a sprawling group of creditors whose interests often conflict. Those include holders of defaulted bonds issued by the government and state oil company Petroleos de Venezuela SA, bilateral lenders such as China, multilateral institutions and companies including ConocoPhillips seeking compensation for expropriated assets.
The government plans to quickly produce economic reports and a debt-sustainability analysis that will help determine potential recoveries for bondholders and other creditors. Its sovereign bonds currently trade above 50 cents on the dollar after more than doubling over the past year.
That level implies investors are expected to recover about 30% of their overall claims, once accrued unpaid interest is included.
Centerview is expected to help prepare the economic assessments, and facilitate engagement with multilateral lenders such as the International Monetary Fund. The IMF, which would normally gather the data on its own, hasn’t carried out a formal analysis in two decades.
Across the negotiating table, it’s expected to face a bondholder group that includes Fidelity Management & Research, Greylock Capital Management and T. Rowe Price, advised by Houlihan Lokey.