US judge clears way for more Venezuela creditors to join Citgo auction

By Marianna Parraga and Gary McWilliams

HOUSTON (Reuters) – A U.S. judge on Monday granted a large group of Venezuela-linked creditors rights to participate in a January auction of shares in the parent of Houston-based refiner Citgo Petroleum.

A precedent-setting lawsuit by Canadian miner Crystallex Corp formally tied Venezuela-owned Citgo to the South American country’s debts and opened the door to some $24 billion in claims being applied to the refining firm through an auction of shares in a Citgo parent whose only asset is the oil refiner.

The decision still requires the group, formed by 10 companies, to comply with a Jan 12 dateline to have writs of attachments issued against shares in Citgo’s parent, PDV Holding. No extra time was granted, and a new auction schedule issued on Monday is not planned to be modified, the court in Delaware said. The U.S. Treasury also has reserved the right to rule on any winning bid.

O-I Glass (NYSE:), Huntington Ingalls (NYSE:), ACL1 Investments, Rusoro Mining, Koch Industries and Gold Reserve can have claims considered as additional judgments. Another group of four creditors including Siemens Energy that had filed a similar motion to be designated additional creditors were also green-lit, U.S. Judge Leonard Stark ruled.

The companies had sought to participate “with full force and effect” in the event two of the largest creditors in the long-running case – miner Crystallex and oil firm ConocoPhillips (NYSE:) – reach settlements with Venezuela that could end the lawsuit.

Talks have been on and off for months with holders of billions of dollars due for asset expropriations and defaulted Venezuelan bonds seeking to settle their claims.

The additional creditors had argued they needed to have equal status to protect their interests in event of a deal and to organize their own credit bids, using their claims against the purchase price in any sale.

LAST-MINUTE SETTLEMENTS

Settlement talks between Venezuela, Crystallex and Conoco appear to have sparked a flurry of court filings by companies hoping to improve their chances of receiving proceeds from asset sales involving Citgo.

Citgo and Conoco declined to comment on settlement talks. A representative for Crystallex and a board supervising Citgo did not reply to requests.

“We remain committed to pursuing all available legal avenues to protect our rights and obtain a full and fair recovery,” a Conoco spokesperson said in response to questions about the talks.

The U.S. Supreme Court separately on Monday rejected Venezuela’s move to limit the number of companies that could participate in the auction.

Both Monday decisions open a window for any additional creditors to get a slice of the auction’s proceeds, especially if the largest creditors settle with Venezuela, leaving room for others.

“In the event that any of the sale process parties proposes to settle its differences with any of the Venezuela parties, the six creditors, the four more creditors and any other interested entity will have an opportunity to be heard on whether the court should approve such a settlement and, if it does, on how the potential resolution or settlement might affect the sale process,” Stark wrote in his order.

Expectations of a settlement have climbed as the court-auction of shares draws near. Any final negotiation must be heard by the court.

Last week, the court official designated for the case, Robert Pincus, said claims should not be expedited or given additional priority ahead of a deadline for claims to be accepted, set for Jan. 12.

To do so “would disrupt a process carefully considered … and months-ago approved by order of the court,” Pincus wrote. The rush to win approvals would allow claims to be considered in first-round bids for the shares due ten days later.

Companies could use their higher status to organize credit bids for the Citgo parent’s shares and “approach the market with proposals that commercial parties are comfortable with,” wrote hedge fund Pharo Management, which seeks $1.78 billion in claims.

Judge Stark has given priority to Crystallex’s $970 million and Conoco’s nearly $10 billion in claims. If they are fully paid, it could leave little for others. Citgo has been valued at between $11 billion and $13 billion in the past.

Bondholders seeking about $1.9 billion are pursuing Venezuela in a case separate from the Delaware court and have protested they could be shut out of proceeds.