PW Español

PW Live

Very usefull links




Business Partners





The Global Barrel

Tiempo Cultural

Gustavo Coronel


Le Blog des
Energies Nouvelles

News Links




Dow Jones



Views and News
from Norway




Inside, confidential and off the record

PDVSA CITGO bonds a sting

Venezuela's Citgo and the Revolution's Praying Mantis School of Business

Investing in Venezuela has always been like Praying Mantis love.  From the front, BolivarianVenezuela has those big beautiful Miss Venezuela eyes and those angelic clasped praying hands inspiring trust and confidence.  And from behind, Venezuela offers those big Kim Kardashian size profits and yields.   While investors in Venezuela -- from oil companies, to airlines, to consumer products corporations -- have all been lured to their demise, bond holders have until the last 2 years been spared from most Praying Mantis cannibalism, and the sex for bondholders has been great!  Even if Venezuela has not paid shareholders of ExxonMobil, ConocoPhillips, or the Koch brothers' Fertinitro, Venezuela paid the bondholders handsomely! Always!  But the first warning shot was steel company Sidetur, which the Venezuela government expropriated and then didn't pay bondholders (or shareholders) in 2013.  But in this last year, bond holders have also finally gotten their heads ripped off.  And now that Jungle Praying Mantis School of Business is landing on American shores.

This week those lessons spread to American bondholders in a US company owned by Venezuela in the US, as oil refiner CITGO began the process of swindling bondholders.

In July, CITGO issued $650 million in new debt with seemingly strong covenants to protect bondholders.  The first hint of doom for bondholders should have been the lawyers who wrote Venezuela's side of the Citgo bond offering memorandum – Curtis, Mallet-Prevost, Colt & Mosle.  Curtis Mallet's Chairman and former Managing Partner, George Kahale III, is the ace in Venezuela's arsenal and has been the Bolivarian Republic's chief defender in their multitude of expropriation cases.  The guy is better than good – he is the Red Baron of their legal defense, a virtual Prince of Darkness.

Still, the Bond Prospectus seems to have some pretty strong covenants to protect existing lenders and bondholders from just the sort of thing the Citgo is now trying to do:

“The New Senior Credit Facility will also be governed by a financial covenant providing for an indebtedness to total capitalization ratio of no more than 60%, to be calculated on a consolidated basis and for each consecutive four fiscal quarter period.

Payments of Dividends. The New Senior Credit Facility will allow us to pay dividends equal to 100% of our cumulative net income (commencing from April 1, 2014 and excluding the aftertax effect of gain on sales of assets) plus net after-tax proceeds from certain permitted assets sales. The New Senior Credit Facility will prohibit us from paying dividends during the existence of an event of default and to the extent payment of dividends would trigger an event of defa ult, and further restrict our payment of dividends by instituting a number of debt incurrence tests, including the following:

• minimum liquidity of $500 million post-dividend; and

• maximum indebtedness to total capitalization of 55% post-dividend.

Incurrence of Indebtedness. The New Senior Credit Facility will allow us to issue the notes offered hereby. In addition, the New Senior Credit Facility will allow us to issue up to $1,000 million in additional secured and unsecured indebtedness, a portion of which indebtedness may be incurred in the form of fixed rate IRBs. To the extent we issue additional secured indebtedness, it may share in the collateral securing the New Senior Credit Facility and the notes offered hereby on a pari passu basis. We currentl y have $108 million IRBs outstanding. All but $3 million of our outstanding IRBs will be secured on an equal and ratable basis by the collateral securing the notes and the New Senior Credit Facility.”

Venezuela's $650 Million Citgo 6.25% of 2022 Offering Memorandum ( Published by Latin American Herald Tribune )


How is Venezuela getting around these rules which restrict the ability of PDVSA to dilute CITGO's credit quality and the ring-fencing which includes a debt/cap maximum of 60%, with a lower 55% test for purposes of making distribution to the parent; and a restricted payment basket which limits the ability of CITGO to make distributions to its parent. 

Two major moves:

1.- They are forming a new company called Citgo Holding, Inc. which will issue the debt and putting it above Citgo Petroleum Corporation in the food chain.

2.- They are taking the Terminals and Pipeline assets – which, though mentioned in the prospectus were not security for the original bondholders -- and getting them out from underneath the bondholders and SELLING THEM TO THEIR OWN NEW HOLDING COMPANY for $750 million as they suck out the money. This new company, Citgo Holding, Inc., does not yet show up in the database of the State of Delaware Corporations office (as of 23 January 2015).

See: PDVSA CITGO to Issue $2.5 Billion in Debt to Give to Venezuela

Russ Dallen / Caracas Capital Markets / 01 23 2015

ISSUES....01/26/2015 - Send Us Your Issues

ISSUES.... Inside, confidential and off the record

Is an independent journalist effort from Petroleumworld, on Inside, Confidential and Off The Record Information, its views are not necessarily those of Petroleumworld

Follow us in : twitter / Facebook


Send this story to a friend

Copyright© 1999-2009 Petroleumworld or respective author or news agency. All rights reserved.

We welcome the use of Petroleumworld™ stories by anyone provided it mentions as the source. Other stories you have to get authorization by its authors.

Internet web links to are appreciated

Petroleumworld welcomes your feedback and comments,
share your thoughts on this article, your feed. back is important to us!

We invite all our readers to share with us
their views and comments about this article.


Write to


By using this link, you agree to allow PW
to publish your comments on our letters page.

Any question or suggestions,
please write to:


Best Viewed with IE 5.01+ Windows NT 4.0, '95,
'98,ME,XP, Vista, Windows 7,8 +/ 800x600 pixels

Port Spain, Trinidad
January 26th and 27th 2015

Mexico Gas Congress
February 24-26, 2015



WGC Paris, June, 2015





Editor & Publisher:Elio Ohep F./Contact Email:

Contact: phone: Office (58 212) 635 7252,
or Cel (58 412) 996 3730 / (58 414) 276 3041 / (58  412) 952 5301

CopyRight © 1999-2010, Elio Ohep F.- All Rights Reserved. Legal Information

- CCS Office Tele
phone/Teléfonos Oficina: (58 212) 635 7252

PW in Top 100 Energy Sites

Technorati Profile

CopyRight © 1999-2010, Elio Ohep F. - All Rights Reserved.
This material may not be published, broadcast, posted online, rewritten or redistributed by any type of means, except with permission of the author/s

The information in this web site is proprietary and is protected under United States and International Copyright and Trademark laws. No part of this web site may be reproduced or transmitted in any form by any means whatsoever, except with permission of the author/s..

Petroleumworld encourages persons to reproduce, reprint, or broadcast Petroleumworld articles provided that any such reproduction identify the original source, or else and it is done within the fair use as provided for in section 107 of the US Copyright Law. If you wish to use copyrighted material from this site for purposes of your own that go beyond
'fair use', you must obtain permission from the copyright owner.
Any use of this site or its material, in any form, without the express prior written consent of the author, is prohibited by law and is subject to legal action. Legal Information

Top 100+

Technorati Profile
Fair use notice of copyrighted material:

This site is a public free site and it contains copyrighted material the use of which has not always been specifically authorized by the copyright owner.We are making such material available in our efforts to advance understanding of business, environmental, political, human rights, economic, democracy, scientific, and social justice issues, etc. We believe this constitutes a 'fair use' of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed without profit to those who have chosen to view the included information for research, information, and educational purposes. For more information go to: If you wish to use copyrighted material from this site for purposes of your own that go beyond 'fair use', you must obtain permission from Petroleumworld or the copyright owner of the material.