Bondholders, bidders object to Gold Reserve group’s Citgo bid

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By Marianna Parraga

HOUSTON (Reuters) -Holders of a defaulted Venezuelan bond, some creditors and bidders that participated in a U.S. auction of shares in the parent of Venezuela-owned refiner Citgo Petroleum filed objections to the auction’s recommended outcome, court documents released on Monday showed.

The challenge to the $7.4 billion offer by a group led by a unit of miner Gold Reserve could again derail the sale. Citgo, Venezuela’s priced foreign asset, has been put on the auction block to pay creditors who lost billions to the South American country’s expropriations and defaults. 

Proceeds from the court-organized auction of PDV Holding are expected to compensate up to 15 creditors fighting since 2017 to recover nearly $19 billion in U.S. courts. 

The latest bidding round was the second organized to auction the parent of Houston-based Citgo Petroleum after a failed round last year. Last week, a court officer overseeing it recommended an offer by Gold Reserve’s subsidiary Dalinar Energy Corporation to Delaware Judge Leonard Stark.

If approved, the Gold Reserve group’s bid would cover 11 of the creditors, including its own $1.18 billion claim for the expropriation of mining assets in Venezuela.

Contrary to other bids, Dalinar’s offer did not include an agreement to pay holders of a key defaulted Venezuelan bond collateralized with Citgo equity, which has triggered most of the objections.

A lack of clarity about the evaluation criteria also created confusion about the bidding round’s goal, the objections filed showed.

Gold Reserve and lawyers representing the holders did not immediately reply to requests for comment.

BONDHOLDERS IN OR OUT?

Some participants view a pact with the bondholders as essential to clear the way for a transfer of the shares to the winning consortium. Others say the holders first need to win in a New York court, where they are fighting since 2019 to have their claim enforced. 

In a briefing call in late June, Judge Stark told a counsel of court officer Robert Pincus that he was “highly confident” there was going to be further litigation in the case after the bid recommendation, according to a transcript of the call. Pincus oversees the auction as “special master.”

Stark will receive objections to the recommended bid through July 9. Any competing bidder can also disclose its offer’s terms to challenge the winner. A final hearing on the sales process is scheduled for August 18.

In parallel, Judge Katherine Polk Failla from the Southern District of New York will hold a hearing on July 10 where the bondholders will seek relief, including through an injunction, to preserve their claim, they said.

The Gold Reserve group’s proposed transaction “appears designed to interfere with the 2020 bondholders’ ability to protect their rights,” the bondholders told Stark in a filing on Monday.

“The special master conducted a deficient process in which he failed to generate highest and best bids by instead encouraging bids that contemplate transactions that have no meaningful prospect of closing,” they added.

Another creditor in the Delaware auction, U.S. oil producer ConocoPhillips, told the court it would have insufficient options to select another bidder if the bondholders block Gold Reserve’s transaction. ConocoPhillips said this “could render the financing structure for the Gold Reserve bid impossible or impracticable.”

A $7.3 billion offer by an affiliate of hedge fund Elliott Investment Management was rejected last year by most creditors, creating the need for a new bidding round this year.

(Reporting by Marianna Parraga; Editing by Richard Valdmanis, Mark Porter, Marguerita Choy and David Gregorio)