Venezuela bondholders and creditors clash before Citgo auction decision
The auction of Citgo Petroleum's parent company, which is owned by Venezuela and based in the United States, has turned into a heated battle between creditors seeking compensation for expropriation their Venezuelan assets as well as holders of defaulted bonds issued by Venezuelan oil company PDVSA.
Both groups' interests have grown increasingly opposed, as a Delaware court moves towards the conclusion of a nearly two-year long bidding process. The supervising officer changed his recommendation last month during a bidding battle.
The future of the U.S. refinery, the seventh-largest in the country, is at stake. It's owned by Venezuela. Venezuela was found responsible for the debt owed to the South American nation. Next week, the court will hold an auction hearing where all parties and witnesses can be heard.
Robert Pincus, a court officer, selected the $7.4 billion offer from Gold Reserve's subsidiary in Toronto as the top bidder at an auction held in July.
After the bidders were forced to extend the period due to unsolicited bids, he recommended a $5.9billion bid by an affiliate of Elliott Investment Management, primarily because it included $2.1billion in cash that would settle the claim of Venezuelan bond holders who had defaulted on their PDVSA bonds.
Gold Reserve, along with four other parties, has filed a motion to disqualify Amber Energy's bid. Amber Energy's bid was supported by holders of PDVSA 2020 Bonds, Crystallex and ConocoPhillips as well as top creditors.
The switch has also intensified an ongoing conflict in U.S. court between companies whose Venezuelan asset were expropriated over a decade ago, and defaulted bondsholders.
The sudden change reopens a debate about how PDVSA 2020 Notes risk is priced. This question has previously swung this process," said consultancy Aurora Macro Strategies last month in a report.
PDVSA 2020 bonds were trading at 98.5c on the dollar Tuesday, after hitting a record high of 100c last week.
WHO'S FIRST?
Gold Reserve, Venezuela, and other creditors are waiting for the outcome of a separate case in New York regarding the validity of bonds before they pay anything to holders. However, some bidders such as Amber propose to settle the bondholders claim immediately to remove the obstacle that had been clouding the sale.
This difference has caused a valuation gap of up to $2 billion, which makes it difficult to compare bids.
Pincus, the court officer, said that on Friday "the evaluation criteria adopted the court make it clear that the bid that has the highest price will not necessarily the best bid."
The gap is also crucial to determine how many of 15 claimants in Delaware who are registered to receive up to $19 Billion from auction proceeds, will be compensated and if paying bondholders before creditors will prevent them from receiving payment.
Amber's offer would cover all nine creditors, plus a small part of Gold Reserve’s $1.18bn claim if it were accepted. The Gold Reserve group's proposal would cover 12 creditors.
Gold Reserve declined comment. Amber Energy has not responded to our request for a comment.
New York Judge Katherine Polk Failla announced on Tuesday that she will make a decision this month on bondholders rights, which may change the priority and weight that bidders assign to the claim.
The parties in Delaware are preparing for the hearing on the sale of the property, which may include another round of arguments if Judge Leonard Stark decides to wait until the New York ruling is made before he makes his final decision. (Reporting and editing by Nathan Crooks, Marguerita Choy, and Marianna Pararaga)
(source: Reuters)
