The “special master” overseeing the auction has requested that creditors be barred from pursuing separate court claims.
By Ricardo Vaz
CARACAS, (venezuelanalysis.com) – A Delaware court-mandated auction of Venezuelan US-based refiner CITGO is facing renewed obstacles from separate creditor legal efforts.
Gramercy Distressed Opportunity Fund, G&A Strategic Investments and Siemens Energy have filed lawsuits in Texas and New York to collect on debts via shares belonging to PDV Holding (PDVH), CITGO’s parent company.
The court cases may delay or jeopardize the years-long Delaware process that has established a “first come, first serve” order for creditors to collect on debts once the refiner’s sale is executed.
If Gramercy, G&A and Siemens are allowed to “jump the line,” other claimants are likely to pursue independent litigation as well. The three corporations are owed US $537 million, $1.1 billion and $194 million, respectively.
Canadian miner Crystallex initiated the Delaware proceedings after US sanctions stopped the Venezuelan government from fulfilling payments on an international arbitration award. District Judge Leonard P. Stark set the auction in motion to sell CITGO, valued at $11-13 billion, to satisfy a number of claims against the Caribbean nation.
Crystallex ($1.0 billion), Tidewater ($80 million), ConocoPhillips ($1.3 billion) and O-I Glass ($700 million) are the first on the list. The liabilities attached to the auction total $21.3 billion. Most stem from awards granted by state-investor arbitration tribunals as compensation for assets nationalized by the Venezuelan state.
Court-appointed “Special Master” Robert B. Pincus, who has been tasked with organizing the CITGO auction, has requested that Judge Stark block creditors on the Delaware case from pursuing independent litigation.
In late September, Pincus selected Amber Energy, an affiliate of vulture fund Elliott Investment Management, as the winning bidder in the CITGO process with a $7.3 billion offer. Elliott, led by founder and CEO Paul Singer, has a track record of focusing on distressed securities, particularly sovereign debt from countries in default or near-default situations.
Amber’s bid falls significantly short of CITGO’s valuation and would satisfy only a small fraction of the existing claims. The proposal can still be withdrawn depending on the outcome of the parallel lawsuits.
However, the terms of the sale have drawn opposition from the auction creditors. The proposal sets up part of the proceeds in an escrow fund for eventual settlements with bondholders, meaning claimants would have to wait for those negotiations to conclude and possibly draw payments from an even smaller total.
For his part, Pincus has urged the court to bind the Elliot affiliate’s bid before engaging in a revision of the terms. Judge Stark postponed a hearing on the sale from November to January.
One of the pending cases involves the defaulted PDVSA 2020 bond for which 50.1 percent of CITGO shares were pledged as collateral. Successive US Treasury orders have barred bondholders from executing the collateral. With the bond’s validity still undergoing litigation in New York courts, Pincus and Amber have attempted to reach an eventual settlement.
The Venezuelan hardline opposition has drawn severe criticism and suspicions of collusion over its handling of CITGO. The Juan Guaidó-led self-proclaimed “interim government” was handed control of the company and other US-based assets after being “recognized” by the Trump administration. Its public statements and actions led to several corporations securing favorable “alter ego” rulings to tag their claims to the Delaware auction.
ConocoPhillips was one of the main beneficiaries, with Guaidó lawyers’ court no-shows allowing the oil giant to win a default ruling to enforce a massive $8.5 billion arbitration award that has since surpassed $10 billion with accrued interest. The Houston headquartered enterprise later managed to attach its debt to the Delaware proceedings.
ConocoPhillips has launched an aggressive strategy to collect its claims beyond the CITGO auction. According to Bloomberg, the US Treasury Department has granted several licenses to allow the firm to launch legal efforts in countries where Venezuela’s state oil company PDVSA might hold assets. In one case, the US corporation looks to seize future Venezuelan proceeds from joint natural gas deals with Trinidad and Tobago.
For its part, the Nicolás Maduro government has blasted the court-ordered sale of CITGO, the country’s most prized foreign asset, 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 PDVSA subsidiary, 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 more than 4,000 service stations, mostly on the US East Coast.
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