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New claims threaten Delaware court's ranking for payments

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Siemens, Gramercy lawsuits could upend 7-year-long case

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Elliott affiliate Amber ties Citgo bid to barring new

lawsuits

By Marianna Parraga

HOUSTON, Oct 9 (Reuters) - Holders of billions of

dollars in Venezuelan bonds and notes have emerged as

last-minute protagonists in a U.S. court case set to decide the

ownership of oil refiner Citgo Petroleum, threatening to derail

an auction to compensate more than a dozen companies for unpaid

debts and expropriations by the country.

At least two groups of holders have resorted to other U.S.

courts to enforce their claims, pursuing the same Citgo assets

that industrial conglomerates, mining and oil firms have been

pursuing for years.

The court cases, designed to circumvent the court's priority

in payouts, have added new delays to a 7-year-long case and

increased uncertainty over which company best positioned to take

over the seventh-largest U.S. refiner.

The new lawsuits last month motivated Elliott Investment

Management affiliate Amber Energy to impose conditions to its

$7.3 billion offer for Citgo's parent, PDV Holding, making it a

highly uncertain bid. PDV Holding's only asset is Citgo's

807,000-barrel-per-day refining network and linked facilities.

If the Delaware court handling the auction cannot block the

rival claims, the Elliott affiliate's offer can be withdrawn in

days, throwing the auction into chaos.

WHO IS FIRST?

Holders led by Gramercy Distressed Opportunity Fund want to

have the Delaware court prioritize their payments, which would

cut the potential proceeds from the share auction available to

other creditors, leaving a large number of them empty-handed.

Creditors including oil giant ConocoPhillips ( COP ), Gold

Reserve ( GDRZF ) and miner Crystallex, which brought the original

case that found Citgo's parent liable for Venezuela's debts,

have opposed allowing the bondholders to jump the line.

If the Gramercy claims are not barred, they could dash the

court's carefully constructed 'first come, first serve' priority

order that begins with Crystallex, Tidewater,

ConocoPhillips ( COP ), O-I Glass ( OI ) and Huntington Ingalls

.

Citgo, Venezuela's crown jewel of foreign assets, has been

valued up to $13 billion as part of the auction while claims

against those shares total $21.3 billion. Venezuela's external

debt, which remains largely unpaid, is about $150 billion.

CAN THE BONDHOLDERS BE STOPPED?

Robert Pincus, the court officer managing the auction, has

requested the judge block creditors already participating in the

sale process from resorting to other courts.

Judge Leonard Stark is expected to make a decision soon, which

could be challenged, further delaying the sale or forcing the

court officer to start negotiations with another bidder, or

ultimately scrap the auction.

Another group of creditors, the holders of bonds

collateralized with Citgo equity, also could be prioritized.

They have not won their court cases about the bonds' validity,

but Stark this year approved a motion to include payment

provisions as part of bids, which granted them a place in the

deliberations.

Pincus failed to reach a payment agreement with these holders as

part of the bid negotiation on the deadline set by the court.

Because of the many obstacles in the middle, Elliott affiliate's

offer has not been confirmed by the judge and the process'

deadlines will not be enforced until a new schedule is approved,

Stark said last month.

WHAT ARE OTHER CREDITORS DOING?

Several creditors have told the judge they could follow

Gramercy's strategy and file parallel lawsuits if Stark does not

block the holders from resorting to other courts.

Siemens Energy this month filed a similar lawsuit in a Texas

court seeking to recoup about $200 million from a promissory

note unpaid by Citgo's ultimate parent, state company PDVSA.

Creditors that do not hold Venezuelan bonds or notes and lawyers

representing Venezuela have criticized the negotiation between

Pincus and Amber Energy, arguing it lacks transparency and the

bid's amount is too low to even cover the first claims in line.

They will be granted time to file objections to the offer

and to the process once a new calendar is approved, likely

postponing the case's final hearing to early 2025, the judge

said.