Venezuela: Competing Lawsuits, Disputed Verbiage Muddle CITGO Asset Sale
Rewritten Article:
October 13, 2024 | Our Website
The impending auction of CITGO, the US-based Venezuelan refiner, is facing renewed snags due to legal efforts from various creditors.
Gramercy Distressed Opportunity Fund, G&A Strategic Investments, and Siemens Energy have launched legal battles in Texas and New York to claim their debts through PDV Holding (PDVH), CITGO's parent company. These court cases might disrupt or jeopardize the long-running Delaware process, which has established a priority system for creditors to recoup their dues after the refiner's sale.
If Gramercy, G&A, and Siemens are permitted to skip the line, other claimants may initiate independent litigation as well. The three companies are owed $537 million, $1.1 billion, and $194 million, respectively.
The시작 of the Delaware proceedings was initiated by Canadian miner Crystallex following US sanctions that halted the Venezuelan government's ability to pay off international arbitration awards. District Judge Leonard P. Stark initiated the auction to sell CITGO, valued between $11-13 billion, to pay off various claims against Venezuela.
Crystallex ($1.0 billion), Tidewater ($80 million), ConocoPhillips ($1.3 billion), and O-I Glass ($700 million) are located at the top of the list. The liabilities tied to the auction amount to $21.3 billion, primarily stemming from awards granted by state-investor arbitration tribunals as compensation for assets seized by the Venezuelan government.
Court-appointed Special Master Robert B. Pincus has requested Judge Stark to block creditors involved in the Delaware case from pursuing independent litigation. In late September, Pincus chose Amber Energy, an affiliate of vulture fund Elliott Investment Management, as the preferred bidder in the CITGO process with a $7.3 billion offer.
Amber Energy's offer falls significantly short of CITGO's valuation and would only cover a small fraction of the existing claims. The proposal can still be withdrawn depending on the outcome of the simultaneous lawsuits. However, the terms of the sale have drawn opposition from the auction creditors.
The proposal sets aside part of the proceeds in an escrow fund for potential settlements with bondholders, meaning claimants would have to wait for those negotiations to conclude and possibly receive payments from a shrunken total. Pincus has urged the court to endorse the Amber Energy bid before revisiting the terms. Judge Stark postponed a hearing on the sale from November to January.
One of the ongoing cases revolves around the defaulted PDVSA 2020 bond for which 50.1 percent of CITGO shares were collateral. Successive U.S. Treasury orders have prevented bondholders from executing the collateral. With the bond's legitimacy still under litigation in New York courts, Pincus and Amber have tried to reach a settlement.
The Venezuelan opposition has drawn severe criticism and accusations of collusion over its handling of CITGO. The Juan Guaidó-led self-proclaimed "interim government" gained control of the company and other US-based assets after being recognized by the Trump administration. Its public declarations and actions led to several companies securing favorable "alter ego" rulings, linking their claims to the Delaware auction.
ConocoPhillips was among the main beneficiaries, with Guaidó's legal team's no-shows allowing the oil giant to secure a default ruling to enforce a massive $8.5 billion arbitration award that has since surpassed $10 billion with accrued interest. The Houston-based enterprise subsequently managed to link its debt to the Delaware proceedings.
ConocoPhillips has undertaken an aggressive strategy to collect its claims beyond the CITGO auction. According to Bloomberg, the U.S. Treasury Department has granted several licenses to enable the firm to pursue legal action in countries where Venezuela's state oil company PDVSA might possess assets. In one instance, the U.S. corporation aims to seize future Venezuelan proceeds from joint natural gas deals with Trinidad and Tobago.
For its part, the Nicolás Maduro government has denounced the court-ordered sale of CITGO, Venezuela's most valuable foreign asset, as "the theft of the century" and promised to contest the loss of the refiner. However, the White House's decision not to recognize the Maduro administration has prevented the latter from safeguarding its interests in the U.S. legal system.
CITGO, a PDVSA subsidiary, possesses a processing capacity of 769,000 barrels per day across its three refineries in Illinois, Louisiana, and Texas. It also owns a pipeline network and over 4,000 service stations, primarily on the U.S. East Coast.
Enrichment Data:- The U.S. District Court in Delaware adopted Red Tree Investments' $3.7 billion bid as the starting offer (stalking horse) for Citgo’s parent company, PDV Holding.- The court explicitly required the final bid to reach "at or exceeding" $7.1 billion—the amount proposed by Gold Reserve's creditor consortium.- The estimated fair value of Citgo sits at $7.3 billion (per recent analysis).- Gold Reserve’s bid relies on $6.5 billion in debt financing from JPMorgan and TD Bank, complicated by OFAC/CFIUS approvals for Venezuela-related transactions.- The sale process remains on track for a mid-2025 resolution but depends on bridging the bid-price gap and resolving multi-jurisdictional creditor disputes.
- The legal battles led by Gramercy Distressed Opportunity Fund, G&A Strategic Investments, and Siemens Energy, aimed at claiming their debts through PDV Holding (PDVH), could potentially disrupt the priority system established in the Delaware process for creditors to recoup their dues after the sale of CITGO.
- If court cases against Gramercy, G&A, and Siemens are permitted to skip the line, other claimants may initiate independent litigation as well, adding complexity to the court proceedings.
- The Delaware proceedings were initiated by Canadian miner Crystallex, following US sanctions against the Venezuelan government, and District Judge Leonard P. Stark has requested a sale of CITGO, valued between $11-13 billion, to pay off various claims against Venezuela.
- Amber Energy, an affiliate of vulture fund Elliott Investment Management, was chosen as the preferred bidder in the CITGO process with a $7.3 billion offer, but the proposal falls significantly short of CITGO's valuation and would only cover a small fraction of the existing claims.
- The ongoing case regarding the defaulted PDVSA 2020 bond, for which 50.1 percent of CITGO shares were collateral, has led to litigation in New York courts, preventing bondholders from executing the collateral and potentially impacting the sale of CITGO.
- The handling of CITGO by the Venezuelan opposition, led by Juan Guaidó, has faced severe criticism and accusations of collusion, particularly regarding the linking of claims to the Delaware auction, a practice that has benefited companies like ConocoPhillips.
