Weatherford Switzerland Trading and Development GmbH v. Petroleos de Venezuela

Background

Weatherford Latin America, as the initial noteholder, and Weatherford Switzerland Trading and Development GmbH, as administrative agent, were parties to a 2016 note transaction with Petroleos de Venezuela, S.A. (PDVSA), as issuer, and PDVSA Petroleo, S.A. (Petroleo), as guarantor. PDVSA issued a note with $120,000,009 in principal. The note carried 6.5% annual interest and an 8.5% default-interest rate. Petroleo agreed to be jointly and individually responsible for, and to unconditionally guarantee, PDVSA’s payment obligations.

The parties agreed that the amount owed on the acceleration date was $91,750,466.68, consisting of outstanding principal and accrued interest. They also agreed that 8.5% default interest accrued on that amount from acceleration through the judgment date, at a rate of $21,366.55 per day. They disagreed about whether the agreement required additional default interest on the interest accruing during that period.

Parties’ Positions

The plaintiffs sought judgment for $167,396,358.26 as of September 11, 2025. They argued that the agreement’s reference to “all amounts outstanding” required default interest not only on the acceleration amount but also on each day’s default interest accruing after acceleration. Their calculation therefore included interest on that post-acceleration interest.

The defendants agreed that judgment should be entered and agreed on the post-judgment interest treatment, but calculated that the amount owed as of September 11, 2025 was $149,546,976.40. They argued that the amount subject to default interest was fixed at acceleration and that no additional interest on post-acceleration interest was owed before judgment.

Court’s Analysis

The court determined that the relevant default-interest provision applied when the issuer failed to pay principal, interest, or another amount due. The provision required 8.5% interest, before and after judgment, until the defaulted amount was paid in full. The court rejected the plaintiffs’ reliance on language stating that default interest applied “for so long as such Event of Default is continuing,” explaining that this language applied to a different category of default involving matters such as covenant breaches.

Applying New York law, the court explained that interest on interest, also called compound interest, generally is not owed unless the contract clearly provides for it. Interest on unpaid interest may be available when a contract requires periodic interest payments on specified dates and those payment dates survive acceleration. But acceleration normally makes the entire principal immediately due and eliminates future scheduled interest-payment dates unless the contract says otherwise.

The court found that this agreement did not preserve future scheduled interest-payment dates after acceleration. Section 2.03(b) stated that interest was payable on the scheduled repayment dates, at maturity through acceleration, and after maturity on demand. The court concluded that acceleration made future interest payments no longer due on their scheduled dates. As a result, the plaintiffs were entitled to 8.5% default interest on the principal and interest that were due as of acceleration, but not to another layer of 8.5% interest on the daily interest accruing after acceleration and before judgment.

The court distinguished the Second Circuit’s decision in a prior related proceeding involving similarly worded documents. That decision allowed default interest after judgment on the principal and interest that had accrued through judgment. The court held that the same result applied here: entry of judgment was a compounding event, so post-judgment default interest would run at 8.5% on the full judgment amount. The court stated that this did not authorize daily interest on interest between acceleration and judgment or daily compounding after judgment.

Ruling

The court adopted the defendants’ calculations in whole and ordered entry of judgment in the plaintiffs’ favor for $149,546,976.40. The opinion states that post-judgment interest would run at the contractual 8.5% default rate on the judgment amount. The court also directed the Clerk of Court to close Docket No. 44.