With $1.9B Debt Sale, Citgo Preps for Life Post-Maduro



With $1.9B Debt Sale, Citgo Preps for Life Post-Maduro
Citgo's latest debt sale comes at a difficult time for the U.S. refiner. Rival boards are battling for control of the company and new sanctions against Venezuela (its owner) have pressured earnings.

(Bloomberg) -- Citgo’s latest debt sale comes at a difficult time for the U.S. refiner. Rival boards are battling for control of the company and new sanctions against Venezuela -- its owner -- have pressured earnings.

Yet orders for the $1.9 billion offering have topped $5 billion, according to a person with knowledge of the deal who asked not to be named because the details are private. Pricing levels have also improved as investors expect the company to ride out recent earnings weakness, and believe it could eventually be sold.

Citgo is Venezuela’s most valuable asset abroad, and the only major one that National Assembly President Juan Guaido -- who is recognized as the nation’s rightful leader by more than 50 countries -- has gained control of.

Guaido appointed a new board of directors earlier this year, and the company sold a loan in March to refinance maturing credit lines. The new $1.37 billion secured bond and $500 million term loan, expected to price Wednesday, will refinance a note that matures in February.

Reassurances

As part of the deal, Citgo is asking investors to waive terms requiring it to offer to repay the debt in the event the company is sold. If approved by lenders, Citgo would only have to repay the debt if a change in ownership results in a credit rating downgrade within 90 days. Investors approved similar provisions in March, and are expected to do so again as many see a change in ownership as beneficial.

Changes to the provisions “will ensure uninterrupted operations for Citgo and Citgo Holding by reducing the risk that they would be required to prepay their debt,” a representative for the company said in an email response to questions.

A spokesman for Jefferies, the bank handling the sale, declined to comment.

“Citgo has always operated well and, if anything, in the recent past it has been tainted by its association with its parent and Venezuela,” said Rich Cooper, a partner at Cleary Gottlieb Steen & Hamilton who is advising a group of Venezuela bondholders.

“For Citgo and Citgo Holding creditors, a sale would be beneficial for sure, and likely would result in a pop in trading prices.”

Citgo has made progress in sourcing new suppliers in the wake of U.S. sanctions banning the import of Venezuelan crude. That has given investors confidence that Citgo’s weaker performance in the first half will not be a serious long-term problem.

During meetings and calls with investors, executives reassured participants about the risk of Venezuela extracting cash from the company.

U.S. sanctions currently prohibit the payment of any dividends to state-owned oil producer Petroleos de Venezuela, which means any excess cash generated by Citgo would be available to pay down debt. Even if sanctions were lifted, Citgo would need to keep its debt-to-earnings ratio below two times to be able to pay dividends to PDVSA.

Citgo management told investors it has blocked email and phone communications with PDVSA to comply with U.S. sanctions.


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