Factbox-Which creditors will have priority for Citgo share auction?

By Marianna Parraga

HOUSTON (Reuters) – A U.S. judge in Delaware on Tuesday will set the procedure for an upcoming auction of shares in a parent of Venezuela-owned oil refiner Citgo Petroleum to satisfy more than $20 billion in claims by creditors.

Dozens of companies and bondholders have flocked to U.S. courts to press claims from asset expropriations in Venezuela and debt defaults, hoping to take a slice of the South American country’s most important foreign asset. The judge has proposed to launch the auction on Oct. 23 after six years of legal battle. The whole process is expected to be completed in a year.

Judge Leonard Stark in July gave priority to miner Crystallex International to cash proceeds from the proposed auction, while granting oil producer ConocoPhillips (NYSE:) a position “near the front of the line.”

The court reviewed more than 60 briefs with proposals of how to organize the creditors and bondholders.

Citgo Petroleum operates the seventh largest U.S. refining network, with three refineries, terminals, pipelines and other facilities valued between $10 billion and $13 billion. But creditors that have resorted to U.S. courts are claiming some $23 billion.

This is the priority order and the participation criteria established by Stark:

CRYSTALLEX IS FIRST

Because Crystallex introduced its claim in Delaware six years ago, becoming the first creditor with an arbitration award against Venezuela to resort to a U.S. court, and is the only creditor that has completed all steps to seize property owned by PDVSA for eventual sale, the court has given it priority.

In August 2018, Crystallex obtained an unconditional writ of attachment on its $1 billion outstanding claim, allowing it to pursue shares in Delaware-registered PDV Holding, one of the subsidiaries between Caracas-headquartered state oil company Petroleos de Venezuela and its Houston-based unit Citgo Petroleum.

Nine additional creditors collectively holding judgments of some $5 billion have tried to follow the same path, but have been prevented by U.S. sanctions on Venezuela. The court has given them conditional writs of attachment, while 11 other creditors seeking more than $14 billion have introduced motions to be recognized by the court as additional creditors.

AWARDS, WRITS IN HAND

Any additional creditors must have international arbitration awards linked to claims from asset expropriations, debt defaults or contract terminations in Venezuela.

Those awards must be filed at a U.S. court to receive judgments to enforce the claims. A creditor that obtains favorable final judgment holding a debtor liable for damages must then register it in Delaware or any other court where the debtor has property.

The creditor must then move for a writ of attachment. The date when the writ is requested will be used to set the priority order in the auction. The court will set a deadline for obtaining a writ before the auction. The writs are ultimately issued by the U.S. Marshals Service.

Besides Crystallex and ConocoPhillips, companies with writs of attachment in hand are Red Tree Investments, Siemens Energy, O-I European, Huntington Ingall Industries, ACL1 Investments, Rusoro Mining, two units of Koch Industries and Gold Reserve.

PAYMENT PRIORITY

Delaware law concerning the enforcement of money judgments generally requires that sale proceeds be distributed according to a “first in time, first in line” priority. In this case, the court is also taking into account the unique factors of the Venezuela case.

The court has so far determined that “Crystallex is first in line.” It also said the priority of any additional judgments will be based on the date on which a creditor moved for a writ of attachment, if ultimately granted.

For Conoco, the court gave the firm a position “near the front of the line” because it has participated in the litigation for years, provided valuable input and paid one third of transaction expenses. Conoco filed in 2019 for a writ of attachment, which was granted last year.

Source link