Court Lets Crystallex Attach Equity in CITGO Parent
posted by Mark Weidemaier
Just a quick post for now, as the court is keeping its opinion under seal for the time being. Crystallex, a creditor of Venezuela, has been trying to enforce its claims by attaching PDVSA's equity interest in PDV Holding, the ultimate U.S. parent of CITGO. For more background, there have been a number of postsalready here on Credit Slips. The district judge overseeing the action in Delaware has just granted Crystallex's request.
I'll have more to say once the opinion becomes public, although portions will undoubtedly be redacted in that version. The secrecy seems to be associated with an OFAC license obtained by a third party (presumably the entity financing this litigation), which Crystallex believes authorizes attachment notwithstanding U.S. sanctions against Venezuela. Those sanctions require OFAC authorization for "attachment of an equity interest in any entity in which the Government of Venezuela has a 50 percent or greater ownership interest" (see FAQ 596) and define "Government of Venezuela" broadly to include PDVSA. I assume the redactions will mostly affect this part of the opinion.
Even more important, the opinion will have to explain why Crystallex, a creditor of Venezuela, can attach PDVSA's property. Presumably the reason is that the court has found the two entities to be alter egos. If so, that's an important ruling that may have much broader consequences in any attempted restructuring of PDVSA or Republic debt.
Edit: I should add that the fact that the court has issued the writ does not necessarily mean Crystallex will immediately be allowed to execute. Leaving aside any delay associated with appeal, the district judge has previously distinguished the decision to issue the writ from the decision to allow execution. Any attempt to execute the writ will also raise new questions. For instance, must there be an attempt to sell the shares? If not, how should the shares be valued (since Crystallex is only entitled to receive the amount of its judgment plus interest)?
Crystallex wins on alter ego, PDVSA appeals Moody's:
A Delaware district court ruled in favor of Crystallex’s alter ego argument yesterday, conditionally authorizing a writ of attachment on PDVSA’s assets in Delaware, namely, PDV Holdings (PDVH). Recall that Crystallex is in possession of a $1.2bn US judgment against the Republic of Venezuela, stemming from an ICSID arbitration award based on the 2011 expropriation of the Las Cristinas gold mine. Crystallex, among other parallel legal actions, in 2017 petitioned the Delaware district court to authorize its attachment PDVH, the 100% PDVSA-owned Delaware based hold-co that owns Citgo. Crystallex’s motion was based on its contention that PDVSA is the alter-ego of the Republic, and thus its assets, specifically in this case PDVH, should be available to satisfy the judgment. Note that Crystallex in this case is not contending that PDVSA itself is a judgment debtor. Yesterday’s Delaware order granted the writ of attachment but ordered the two parties to meet and confer before the judge published the public version of his opinion today. The judge also ordered the two sides to submit a joint status report by August 16 to provide their positions on how the case should move forward. Until this second meeting occurs, the attachment order will not be formally issued. In terms of topics for the second meeting, to quote from today’s opinion: Some aspects of the parties’ dispute, however, remain unsettled. These include: (i) how quickly should the Court direct the writ to be issued, how quickly should Crystallex be directed to serve it, and how quickly must Crystallex execute on it; (ii) what is the appropriate commercially reasonable procedure by which to effectuate the sale of the PDVH shares, in order to maximize the likelihood of a fair and reasonable recovery, and how involved (if at all) does the Court need to be in that sale process; (iii) does Crystallex, or alternatively a purchaser of the PDVH shares, wish to (or need to) seek a license from OFAC to permit the sale and, if so, when will it do so; and (iv) will Venezuela, PDVSA, and/or any other entity appear and seek to supplement the factual record already developed in this litigation and, if so, will such an entity attempt to (and, if so, be permitted to) argue that additional evidence materially alters the Court’s findings, and thereby seek to quash the writ? - Source: Doc 83; case 1: 17-mc-00151-LPS; Page 75 As expected, PDVSA immediately submitted notification of its appeal to the US Court of Appeals for the Third Circuit. Our base case is that a stay would be granted pending this appeal. Note that PDVSA is also confronting a similar alter ego case in Texas for
Rusoro’s $1.4bn judgment against the Republic (also an ICSID award from a mining expropriation), a ruling that when it progresses may similarly be appealed to the Circuit court. Any conflicting rulings between the Circuits could be grounds for a Supreme Court hearing. If a stay is not granted, and Crystallex is able to attach PDV Holdings, the district judge has indicated that a sale process should be initiated (see above) and proceeds would be directed to the judgment holder. But a number of dominoes could start to fall since a change of control could be an event of default for Citgo’s own $3.5 bn of bonds. Moreover, holders of $2.5bn outstanding of PDVSA 2020s, collateralized by 50.1% of Citgo’s shares, would face key decisions. The conventional wisdom is that PDVSA would have no incentive to keep paying the ‘20s once Citgo is lost to some other creditor. However, we note that the revealed preference of PDVSA so far—via fighting all these court battles in the first place, and PDVSA’s henceforth prompt payment of the ‘20s amid a default on other bonds—suggests that PDVSA has a strong desire to hold on to Citgo, even if the challenges to doing so are mounting. PDVSA’s strategic stance in this regard would also seem to auger against a preemptive move to put PDV Holdings in Chapter 11 bankruptcy, a scenario discussed in great detail by lawyers from Cleary Gottlieb in a recent report. Assuming, as we do, that the Cyrstallex/Rusoro alter ego cases get bogged down in appeals, the next and potentially more impactful case to watch will be that of ConocoPhillips, which on April 24 received a $2.0 bn arbitration award from the International Chamber of Commerce (ICC) based on 2007 oil project nationalizations. 1 Following the ICC award, Conoco immediately moved to attach assets in the Dutch Caribbean while also petitioning the Southern District of New York for a judgment so as to enforce the award in the US. The US process has been stalled by the procedural requirements of serving PDVSA, an instrumentality of a sovereign as governed by the US Foreign Sovereign Immunity Act (FSIA) and its deference to the Hague Service Convention. The latest court update at the SDNY suggested there may be months to go before service is effected and a judgment in favor of Conoco can be rendered. In the meantime, public comments from both Conoco and PDVSA suggest settlement discussions are taking place, though there is no clarity on how advanced they might be. (Whether an agreement can be reached, and whether OFAC consent will be required to execute any settlement, are outstanding questions.) If no settlement occurs and Conoco eventually attains a judgment, presumably it can begin to attach PDVSA assets, since the judgment would be against PDVSA (not the Republic; i.e., no alter ego considerations). Aside from PDV Holding and hence Citgo, we think
PDVSA accounts receivable generated by sales to US refineries could be assets vulnerable to attachment. In our view, the pledge of shares to PDVSA 2020 holders would withstand any attachment by Conoco and Crystallex of PDV Holding as that pledge has already been perfected and the collateral ranks senior to the shares of PDV Holdings 2 (please see Figure 1). Nevertheless, PDVSA 2020 bondholders continue to face a decision to either wait for the upcoming $842 million amortization in October 27 or accelerate before Conoco or Crystallex formalizes the judgment in US Courts. In our view, PDVSA 2020s may wait for the potential amortization payment given that Conoco and Crystallex processes are lagging in timing versus the upcoming amortization date. o PDVSA 2020 covenants. Given that PDVSA is still current on the 2020s, bondholders may only seek to instruct the collateral agent to access the collateral if i) PDVSA does not pay the $842 million amortization on October 27, by which default is automatic (no cure period); ii) Conoco, Crystallex, or another party obtain a final and non-appealable judgment higher than $100 million and such judgment is unpaid for a period of 60 days. Noteworthy, the language on the bonds does not include any jurisdiction, so any final and non-appealable judgment from Conoco outside the US could in theory trigger this provision; 3 or iii) the pledge agreement includes a negative covenant (4.02 (b)) that restrain PDVSA from “sell, assign, lease, transfer or otherwise dispose of any interest in the Collateral.” Nevertheless, a default on this covenant needs to be continuing for a period of 60 days. o CITGO Debt Covenants. As referenced above, change of control provisions under Citgo Debt are another layer of complication to any asset sale process. However, those provisions would only be triggered after legal ownerships are realized. Currently, CITGO Petroleum’s revolver and TLB include the change of control provision as an event of default. As a result, we believe any process at PDV Holding or Citgo Holding would require further negotiations with those creditors to avoid a foreclosure on the real assets pledged on those agreements (Please see Table 2). PDVSA 2020 seems to be trading almost to perfection. Based on comparable refineries and retailers in the U.S. (see Refining Monthly by J.P. Morgan Equity Analyst Phil Gresh), we have valued CITGO’s equity at $5.6 billion, which assumes an EV/EBITDA multiple of 7.6x for the refining business and 8.0x for the midstream / distribution business. We have also deducted a 20% discount to the equity value of CITGO to reflect the inherent risk on perfecting the security of the
shares. As outlined in Table 1, we arrive at a price value for PDVSA 2020s of $91.0.
Sembra di capire che nonostante abbia dimostrato alter ego in futuro bisognerà dimostrare caso per caso in quanto ciò serve solo per “enforce the judgement” ma non costituisce “liability” credo di aver interpretato
Il Venezuela non è un isoletta che è fuori dalla geopolitica, a nessuno importa davvero se a Cuba vivono o muoiono, non ci sono risorse e non ci sono interessi.Il Venezuela è uno stato che ha le riserve petrolifere più grandi del mondo è pieno di altri minerali importanti , ha anche storie recenti di insurrezione e colpi di stato. Non vedo scenari a 30 anni ci sarà da soffrire come cani, magari vedremmo anche interventi militari esterni, ma una cubanizzazione duratura la vedo in salita
(ANSA) - CARACAS, 11 AGO - Il governo venezuelano ha chiesto all'Interpol di attivare il 'codice rosso' per catturare l'oppositore Julio Borges, ex presidente dell'Assemblea nazionale, che viene presentato come 'il mandante' di quello che viene considerato come un attentato realizzato sabato a Caracas ai danni del presidente Nicolás Maduro.
La notizia è stata resa di pubblico dominio dal ministro della Comunicazione, Jorge Rodríguez, che in una conferenza stampa ha mostrato un video in cui il deputato Juan Requesens, prelevato a forza martedì dal suo domicilio nella capitale venezuelana, confessa di avere ricevuto istruzioni da Borges per collaborare al transito alla frontiera colombiano-venezuelana di una persona (Juan Carlos Monasterio, ndr.) implicata nell'organizzazione dell'attentato e segnalato come "autore materiale".