Citgo Auction in Jeopardy as Venezuelan Bondholders Pursue Parallel Claims – Reuters

By Marianna Parraga

HOUSTON – Holders of billions of dollars in Venezuelan bonds and notes have become key players in a U.S. court case that will determine who owns Citgo Petroleum, potentially complicating an auction aimed at compensating over a dozen companies for unpaid debts and expropriations by Venezuela.

At least two groups of bondholders have turned to other U.S. courts to assert their claims, targeting the same Citgo assets that industrial conglomerates, as well as mining and oil firms, have been seeking for years.

These additional lawsuits have introduced further delays into a case that has already been ongoing for seven years and have created uncertainty regarding which entity is best positioned to acquire the seventh-largest refiner in the United States.

The recent court actions have prompted an affiliate of Elliott Investment Management, Amber Energy, to impose conditions on its $7.3 billion proposal for Citgo’s parent, PDV Holding, rendering its bid highly uncertain. PDV Holding’s only significant asset is Citgo’s network of 807,000 barrels-per-day refining capabilities and associated facilities.

If the Delaware court managing the auction cannot prevent these competing claims, the offer from the Elliott affiliate could be retracted within days, leading to turmoil in the auction process.

WHO GETS PRIORITY?

Bondholders led by the Gramercy Distressed Opportunity Fund are seeking to have the Delaware court prioritize their payments. This would significantly reduce the potential proceeds from the auction available to other creditors, leaving many without compensation.

Creditors such as ConocoPhillips, Gold Reserve, and Crystallex, who initiated the original case that deemed Citgo’s parent liable for Venezuela’s debts, oppose allowing the bondholders to gain precedence.

If the Gramercy claims are successful, they could undermine the court’s carefully structured priority system that starts with Crystallex, Tidewater, ConocoPhillips, O-I Glass, and Huntington Ingalls.

Citgo, which is considered Venezuela’s most valuable foreign asset, has been valued at up to $13 billion in the auction, while the total claims against its shares reach $21.3 billion. Venezuela’s external debt remains around $150 billion, largely unpaid.

CAN THE BONDHOLDERS BE STOPPED?

Robert Pincus, the court officer overseeing the auction, has requested that the judge prohibit creditors who are already involved in the sale process from seeking relief in other courts.

Judge Leonard Stark is expected to make a timely ruling, which could be appealed, potentially further delaying the sale or prompting the court officer to initiate discussions with another bidder—or even abandon the auction altogether.

Another group of creditors, those holding bonds secured by Citgo’s equity, may also seek prioritization. While they have not yet resolved their legal battles concerning the validity of their bonds, Stark approved a motion earlier this year to incorporate payment provisions into bids, granting them a role in the discussions.

Pincus was unable to reach a payment deal with these bondholders by the court’s deadline. As a result, the offer from the Elliott affiliate has not been finalized by the judge, and any deadlines associated with the process will not be enforced until a new timeline is established, as indicated by Stark last month.

WHAT ARE OTHER CREDITORS DOING?

Several creditors have indicated to the judge that they may follow Gramercy’s lead and file similar lawsuits if Stark does not block the bondholders from pursuing claims in other courts.

Recently, Siemens Energy filed a lawsuit in a Texas court, seeking to recover approximately $200 million owed to them by Citgo’s ultimate parent, state-owned PDVSA.

Creditors not holding Venezuelan bonds or notes, along with attorneys representing Venezuela, have criticized the negotiations between Pincus and Amber Energy. They argue that the process lacks transparency and that the bid amount is insufficient to cover the primary claims.

These parties will be permitted to submit objections to both the offer and the bidding process once a new schedule is approved, likely delaying the final hearing of the case until early 2025, as stated by the judge.