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The Second Circuit on Wednesday overturned the enforcement of nearly $2 billion in defaulted bonds issued by Venezuela's state-owned oil company. This decision followed a ruling from New York's highest court, determining that Venezuelan, not New York, law governs the validity of the bonds.

$2B Venezuelan Bonds Overturns : Key Decision

The circuit court concluded that U.S. District Judge Katherine Polk Failla made an error in October 2020 when she ruled that Venezuelan law was "ultimately irrelevant" in the case.

"Given the Court of Appeals' conclusion, the district court erred, and we therefore vacate its decision and remand so that the district court can, in the first instance, determine whether the 2020 notes and associated instruments were issued in violation of the Venezuelan Constitution and are thus invalid," stated the court's decision.

Bonds Issued Under Scrutiny

Venezuela argues that the $2B bonds, issued by the administration of Venezuelan President Nicolás Maduro, are illegal. The contention is that they pledged as collateral a 50.1% stake in Citgo Holding Inc., the parent company of Citgo Petroleum Corp. This move allegedly violated the Venezuelan Constitution, as Maduro did not obtain permission from the Venezuelan National Assembly, thus potentially exposing Citgo to creditors.

The state-owned oil company, PDVSA, maintains that because of this oversight, the bonds cannot be enforced.

$2B Venezuelan Bonds Overturns : Legal Representation

PDVSA and PDVSA Petroleo SA are represented by Kurt W. Hansson, Igor V. Timofeyev, and James L. Ferguson of Paul Hastings LLP. PDV Holding's legal team includes Nicholas Reddick, Michael J. Gottlieb, Kristin E. Bender, and Jeffrey B. Korn of Willkie Farr & Gallagher LLP. The bondholders are represented by a trustee, MUFG Union Bank NA, which has Roberto J. Gonzalez and Jonathan H. Hurwitz of Paul Weiss Rifkind Wharton & Garrison LLP and Matthew S. Salerno of Latham & Watkins LLP on their side.