Citgo auction in jeopardy as Venezuela bondholders pursue parallel claims By Reuters

By Marianna Parraga

HOUSTON (Reuters) – Holders of billions of dollars in Venezuelan bonds and notes have emerged as the latest protagonists in a U.S. lawsuit to decide ownership of the Citgo Petroleum oil refinery, threatening to derail a bid to compensate more of a dozen companies. for unpaid debts and expropriations by the country.

At least two groups of holders have turned to other US courts to enforce their claims, going after the same Citgo assets that industrial conglomerates, mining and oil firms have been chasing for years.

The lawsuits, designed to circumvent court priority in payments, have added further delays to a 7-year-old case and increased uncertainty over which company is best positioned to take over the seventh-largest US refiner.

The new lawsuits last month prompted Elliott Investment Management affiliate Amber Energy to impose conditions on its $7.3 billion bid for Citgo parent PDV Holding, making it a highly uncertain offer. PDV Holding’s sole asset is Citgo’s 807,000 bpd refining network and connected facilities.

If the Delaware court handling the auction cannot block rival claims, the Elliott affiliate’s bid could be withdrawn within days, throwing the auction into chaos.

WHO IS FIRST?

Holders led by the Gramercy Distressed Opportunity Fund want the Delaware court to prioritize their payments, which would reduce potential proceeds from the stock auction available to other creditors, leaving a large number of them empty-handed.

Creditors, including oil giant ConocoPhillips (NYSE: ) Gold Reserve and miner Crystallex, which filed the original filing that found Citgo’s parent liable for Venezuela’s debts, have opposed allowing bondholders to cross the line .

If Gramercy’s claims are not barred, they could overturn the court’s first-come, first-served priority order, which begins with Crystallex, Tidewater (NYSE: ), ConocoPhillips, OI Glass (NYSE: ) and Huntington Ingalls (NYSE 🙂

Citgo, the crown jewel of Venezuela’s foreign assets, was valued at $13 billion as part of the auction, while claims against those shares total $21.3 billion. Venezuela’s foreign debt, which remains largely unpaid, is about $150 billion.

CAN HOLDERS BE STOPPED?

Robert Pincus, the court officer handling the auction, asked the judge to block creditors already participating in the sale process from appealing to other courts.

Judge Leonard Stark is expected to make a decision soon, which could be appealed, further delaying the sale or forcing the bailiff to begin negotiations with another bidder or ultimately cancel the auction.

Another group of creditors, bondholders backed by Citgo stock, could also be prioritized. They have not won their court cases over the validity of the bonds, but Stark this year approved a motion to include payment provisions as part of the bids, which gave them a seat in the deliberations.

Pincus failed to reach a payment agreement with these holders in the tender offer within the court-ordered deadline. Because of the many obstacles in the way, the Elliott affiliate’s offer was not upheld by the judge, and the trial’s deadlines will not be enforced until a new schedule is approved, Stark said last month.

WHAT ARE OTHER CREDITORS DOING?

Several creditors told the judge they could follow Gramercy’s strategy and file parallel lawsuits if Stark doesn’t prevent the holders from going to other courts.

Siemens Energy filed a similar lawsuit in a Texas court this month, seeking to recover about $200 million in an unpaid promissory note from Citgo’s parent company, state-owned PDVSA.

Lenders who do not hold Venezuelan bonds or notes and lawyers representing Venezuela have criticized the negotiations between Pincus and Amber Energy, arguing that it lacks transparency and the offer amount is too small to cover even first-in-line claims.

They will be given time to file objections to the offer and the trial once a new timetable is approved, likely pushing the final hearing of the case to early 2025, the judge said.