Explainer: Venezuela's billions in distressed debt: Who is in line to collect?

The fall of President Nicolas Maduro has brought Venezuela's massive debt crisis to the forefront, with total external liabilities estimated between $150 billion and $170 billion. Creditors ranging from "vulture funds" to nations like China and Russia are now eyeing a complex recovery process that remains hindered by U.S. sanctions and a crippled domestic economy. While bond values have rallied on hopes of political change, experts suggest a formal restructuring will require significant debt forgiveness and years of international cooperation.

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1. The Scale of the Debt Crisis

Venezuela is currently facing one of the most significant and unresolved sovereign defaults in the world. The trouble began in late 2017 when the government and its state oil company, PDVSA, stopped making payments on their international bonds. This was largely due to a combination of a domestic economic meltdown and U.S. sanctions that cut the country off from global financial markets. 📉

Since that initial default, the situation has grown much worse. Unpaid interest and legal claims from past government seizures of private property have piled up, pushing the total debt far beyond the original borrowed amounts. Interestingly, the value of this "distressed debt" started rising in early 2025 as investors began betting that a change in leadership would eventually lead to a payout.

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2. How Much is Owed and to Whom?

While the exact numbers are hard to pin down because Venezuela hasn't shared official statistics in years, experts have a general idea of the massive sums involved:

• Defaulted Bonds: Roughly $60 billion in outstanding bonds.
• Total External Debt: Between $150 billion and $170 billion when including loans from other countries and court-ordered payments.
• Debt-to-GDP Ratio: With Venezuela's economy estimated at $82.8 billion for 2025, the debt is nearly double the size of its entire economy (180%-200%). 😱

A major piece of this puzzle is Citgo, a U.S.-based oil refiner owned by PDVSA. Many creditors are currently fighting in U.S. courts to grab a piece of Citgo to pay off what they are owed.

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3. The Lineup of Creditors

The list of people and entities waiting to get paid is long and diverse. Because of years of trading bans, it's hard to know exactly who owns what, but the main groups include:

• International Bondholders: This includes "vulture funds," which are investment firms that specialize in buying up the debt of struggling countries at a discount.
• Expropriation Claimants: Companies like ConocoPhillips and Crystallex had their assets seized by the Venezuelan government years ago. They have won multi-billion dollar awards in court and are now treating those wins as debt they want collected.
• Bilateral Creditors: These are countries that lent money directly to the Venezuelan government, primarily China and Russia.

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4. Obstacles to a Fast Resolution

Don't expect a quick fix. A formal "restructuring" (the process of renegotiating debt terms) is likely to be a marathon, not a sprint. 🏃‍♂️

First, Venezuela is currently locked out of the International Monetary Fund (IMF). Usually, the IMF acts as a guide for countries in debt, helping them set financial targets. Venezuela hasn't even had a formal meeting with the IMF in almost twenty years.

Second, U.S. sanctions are a massive hurdle. These rules limit Venezuela's ability to issue new debt or change the terms of old debt without special permission from the U.S. Treasury. While President Donald Trump has stated that the U.S. will "run" the country, the future of these sanctions remains a big question mark.

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5. What Can Creditors Actually Expect to Recover?

Analysts are trying to guess how many "cents on the dollar" creditors will eventually get back. In late 2025, some bonds were trading at about 27 to 32 cents.

• The "Haircut": Citigroup analysts believe that for Venezuela to survive financially, creditors might have to forgive at least 50% of the principal (the original amount owed).
• The Proposed Deal: Citi suggests a potential package involving a new 20-year bond and possibly some "oil-linked warrants," which would pay out more if Venezuela's oil production improves.

Citigroup analysts in November estimated that a principal haircut of at least 50% would be needed to restore debt sustainability and satisfy potential conditions from the IMF.

Other investors are slightly more optimistic, suggesting that if the political situation stabilizes and sanctions are lifted, recovery values could reach the mid-30s.

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6. A Fragile Economic Foundation

The ultimate ability to pay depends on Venezuela's economy, which has been in a tailspin since 2013. Oil production—the country's lifeblood—has struggled due to lack of investment and recent blockades on oil tankers. 🛢️

President Trump has mentioned that American oil companies are ready to invest billions to fix the oil fields, but currently, Chevron is the only major U.S. company operating there. Without a massive revival of the oil sector, Venezuela simply won't have the cash to settle its mountain of debt.

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Conclusion

Venezuela's debt crisis is a tangled web of billions of dollars, international politics, and legal battles. While the change in government has sparked hope among investors, the road to recovery is blocked by heavy sanctions, a crippled oil industry, and a debt load that is twice the size of the country's economy. Whether it's "vulture funds" or world superpowers, everyone in line will likely have to wait a long time and accept much less than they were originally promised.