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ISDA 2017 Venezuela Additional Provisions Protocol
The Protocol is relevant for parties that enter into credit derivatives transactions referencing República Bolivariana de Venezuela (“Venezuela”) or Petroleos de Venezuela, S.A. (“PdVSA”), including referencing any index that contains Venezuela or PdVSA. These entities were included in U.S. Executive Order 13808 of August 24, 2017 (the “Sanctions Order”), which prohibits transactions related to certain types of debt obligations of Venezuela and other entities related to Venezuela (including PdVSA). On August 25, 2017, the US Office of Foreign Assets Control issued General License 3 to the Sanctions Order, which permitted transactions related to specified outstanding debt obligations. We refer to debt that is covered by the Sanctions Order and not permitted (under General License 3 or otherwise) as “Restricted Debt”.
An important practical impact of the Sanctions Order is that persons subject to the Sanctions Order would not be able to deliver or receive Restricted Debt. Due to the broad scope of persons subject to the Sanctions Order, this would make a CDS Auction that included Restricted Debt impractical. As a result of the Sanctions Order, ISDA published new terms for transactions on Venezuela and PdVSA on September 19, 2017 (ISDA’s Additional Provisions for Certain Venezuelan Entities: Excluded Obligations and Excluded Deliverable Obligations), which limit the scope of CDS contracts to debt obligations that are not Restricted Debt.
The Protocol allows parties to update their legacy transactions to apply the new terms, maintaining fungibility between legacy and new transactions and ensuring that the Sanctions Order does not prevent legacy transactions from being included in any CDS Auction that might be held in future.