List of bidders in Citgo auction narrows, remaining groups to sweeten terms
By Marianna Parraga
HOUSTON — Consortia backed by affiliates of Contrarian Funds, Gold Reserve, and Vitol are developing enhanced bids for the parent company of Venezuela-owned refiner Citgo Petroleum as the pool of prospective buyers shrinks, according to sources familiar with the process.
The three groups, which previously took part in determining the initial bidding price, have been engaged in discussions with financial institutions to obtain the necessary funding for their bids in the court-managed share sale. Additionally, they are striving to demonstrate that they can fulfill the conditions outlined in their proposals to ensure the transaction’s completion, according to the sources.
In the initial round held in March, a fourth bidder—a subsidiary of Elliott Investment Management—does not plan to participate further due to perceived legal risks, according to a source close to the matter.
Since 2017, the Delaware court has attempted to sell off one of Venezuela’s key international assets as part of an effort to compensate 16 creditors with approximately $20.6 billion due to bond defaults and nationalizations within the South American nation. However, President Nicolás Maduro’s administration views this action as the “theft” of a state-owned resource.
Citgo, which has headquarters in Houston and is ultimately controlled by Venezuela’s state oil company PDVSA, ranks as the seventh-largest refinery in the United States.
A proposal worth $3.7 billion from Contrarian Funds’ Red Tree Investments was endorsed by Delaware Judge Leonard Stark in April, setting it as an initial bid. The investment company along with competing firms has until May 28 to present enhanced offers.
Following a June 11 deadline for a court officer to select a winner, a final hearing in the auction of shares in PDV Holding, one of Citgo Petroleum’s parents, is scheduled for July 22.
The consortia still have time to tune up offers or decide against bidding. A ruling earlier this week by a New York court dismissing arguments by some companies that could have allowed them to jump the line of creditors established in Delaware could lead to changes in some bids, the sources said.
FIERCE COMPETITION
Robert Pincus, the court-appointed overseer for the auction chosen by Stark, picked a $7.3 billion bid from an Elliott associate called Amber Energy during the initial round last year. However, many of the creditors participating in the auction eventually turned down this proposition because certain terms hindered the allocation of funds.
Pincus, who is receiving advice from investment firm Evercore, chose Red Tree’s less substantial bid to initiate the auction process this time. He cited greater assurance of completion and a means to foster “intense rivalry” as reasons for his decision.
The proposal encompasses an additional $3 billion set aside for resolving obligations, primarily payments to bondholders associated with Venezuela, along with up to $1.5 billion in notes intended for junior creditors, contingent upon how well Citgo performs.
For the first time, Red Tree entered into a payout arrangement with the owners of a delinquent Venezuelan bond backed by Citgo shares. This move could eliminate a major hurdle in allocating funds from the sale to remaining debtors.
Selecting Red Tree’s bid as an initial offering sparked a fresh conflict amongst creditors. Those prioritized higher supported it since it promised them payment. However, those lower on the hierarchy argued against it, deeming the price insufficient. Some even contended that Gold Reserve’s competing proposal worth $7.1 billion should have been selected instead.
Although Stark has instructed that pricing should take precedence over the assurance of finalizing an agreement when determining the winner next month, Red Tree’s accord with the bondholders has encouraged other parties to pursue comparable arrangements, according to the sources.
To bolster their ability to close a deal, the consortia have retained banks to structure and improve their financing.
Red Tree is trying to improve all aspects of its starting bid, a source close to its preparations said, while other consortia are working to boost their financing or coverage of junior creditors. The firm is “confident in the bid’s price and certainty of closing,” the person said of Red Tree’s offer.
The Gold Reserve, Vitol, Amber Energy, Red Tree, and a company representing the holders of the Venezuelan 2020 bonds chose not to comment. Citgo and the boards overseeing the refinery also did not respond to requests for comment.
BAD TIMING?
CITGO reported a loss of $82 million during the initial three months because of poor profit margins, which indicates its second successive financial deficit. The company’s liquidity, an essential factor for potential buyers, decreased to $2.1 billion by the end of March from $3. Eight billion in December.
The firm’s net income dropped to $305 million in 2024 from approximately $2 billion the year before.
The refiner’s recent performance and separate lawsuits in U.S. courts in pursuit of the same assets could limit the size of the bids, analysts have said.
Attorneys acting on behalf of Venezuela are battling in Delaware to establish a minimum price threshold. This effort aims to prevent Citgo’s assets from being sold at merely a small portion of their worth, estimated between $11 billion and $13 billion by advisors to the court.
The intricacy of the procedure is anticipated to pose challenges for Pincus when establishing assessment parameters that will be deemed satisfactory by both the judge and majority of the creditors. This situation has the potential to spark further conflicts and cause postponements.
The individual who wins the auction needs approval from the U.S. Treasury Department, an entity that has safeguarded Citgo from creditors in recent times.
(Reported by Marianna Parraga; Edited by Christian Plumb and Rod Nickel)