Delaware Court to Revamp Auction, Seek New Bids for Venezuela’s CITGO

Caracas, November 29, 2024 (venezuelanalysis.com) – The Delaware court overseeing the sale of Venezuela’s US-based refiner CITGO is set to revamp an ongoing auction process.

Robert Pincus, the court-appointed “Special Master” overseeing proceedings, recommended that Judge Leonard Stark overhaul the sale following recent controversy and criticism of a chosen bid from vulture fund Elliott Management.

In October 2022, Stark launched an auction process for the entirety of shares belonging to PDV Holding (PDVH), CITGO’s parent company, in order to satisfy creditor claims against the South American nation mostly stemming from international arbitration awards. The legal process initiated by Canadian mining enterprise Crystallex saw 18 claims recognized, totaling $21.3 billion.

In September, Pincus chose a $7.3 billion offer from Amber Energy, a subsidiary of Elliott Management, as the auction winner. However, Amber’s proposal and terms of sale drew fierce opposition from creditors.

One of the controversial points from Elliott’s offer involved the set up of an escrow fund to settle claims from outside claimants such as the holders of the defaulted PDVSA 2020 bond, for which 50.1 percent of CITGO shares were pledged as collateral. The US Treasury Department has stepped in to stop bondholders from executing the collateral.

The escrow fund would delay payments and reduce the total amount, meaning only a few creditors would ultimately collect. Amber put forward an alternative offer that would see claimants paid immediately but from a smaller total of $5.3 billion. However, creditors reiterated their opposition and lobbied the court to consider new bids.

With the case stalled, Stark proposed a reorganization of the auction last week, including a “starting point bidder” and reopening CITGO’s data room to interested consortia. The judge also suggested open access to offer terms, termination protections for bidders and time frames for bid raises.

Pincus provided his recommendations to the court on Tuesday by largely implementing Stark’s guidelines. Under his new proposal, potential bidders will have access to CITGO’s financial and operational data ahead of a December 18 formal re-launch of the auction. Following a three month bidding period, Pincus would provide a recommendation to the court ahead of a final sale hearing in May 2025. A CITGO transfer of ownership would require a US government green light, but the Treasury Department has already pledged a “favorable licensing policy.”

Crystallex and Red Tree Investments, owed $1.0 billion and $284 million, respectively, have expressed intentions to submit proposals to rival Elliott’s. Both corporations are reportedly interested in using their credit amounts as part of the bids and may join forces with other creditors.

Gold Reserve, a Canadian miner with a $1.0 billion claim, has likewise declared interest in revisiting CITGO’s data ahead of a potential new bid. It had submitted an offer during a first round earlier this year. For its part, Amber has threatened to walk away and warned that the auction overhaul will “create a chaotic environment” and ultimately affect the sale price.

At the same time, the special master urged Stark to block the Delaware claimants from “skipping the line” via parallel litigation, warning that bidders would not accept the risk. Gramercy Distressed Opportunity Fund, G&A Strategic Investments and Siemens Energy have filed lawsuits in New York and Texas in separate attempts to collect debts via PDVH shares.

The impending loss of CITGO has seen Venezuela’s US-backed opposition draw intense criticism and scrutiny over suspected malpractice and conflicts of interest. The US-based refiner was put under the control of the self-proclaimed “interim government” headed by Juan Guaidó after it gained recognition from the Trump administration.

The actions and public statements by Guaidó and associates were cited in “alter ego” rulings that allowed companies to add their claims to the Delaware auction. The “interim government”’s attorneys’ additional court no-shows allowed US oil giant ConocoPhillips to secure a default ruling to enforce a massive $8.5 billion arbitration award.

For its part, the Nicolás Maduro government has blasted the CITGO court-ordered action as “the theft of the century” and vowed to challenge the loss of the refiner. Nevertheless, the White House’s decision not to recognize the Maduro administration has blocked the latter from defending its interests in the US legal system.

CITGO, a subsidiary of state oil company PDVSA, is Venezuela’s most prized foreign asset. It has a processing capacity of 769,000 barrels per day split into its three refineries in Illinois, Louisiana and Texas. It additionally owns a pipeline network and over 4,000 service stations, mostly on the US East Coast.