*

Elliott not expected to submit bid in this phase of

competition

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Offer financing, payment pacts key to providing assurance

of

completing deal

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Companies working to improve aspects of their offers

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Citgo's performance, parallel lawsuit affecting valuations

in

auction's final round

By Marianna Parraga

HOUSTON, May 21 (Reuters) - Groups led by affiliates of

Contrarian Funds, Gold Reserve ( GDRZF ) and Vitol are

working on improved offers for the parent of Venezuela-owned

refiner Citgo Petroleum as the list of potential bidders

narrows, sources close to the preparations said.

The three consortia, which participated in an earlier

competition for setting a starting bid, have been in talks with

banks to secure the financing needed for their offers in the

court-organized auction of shares. They are also working to

provide assurance they can deliver the proposed terms to

complete the deal, known as "certainty of closure," the sources

said.

A fourth bidder in the starting round in March, an affiliate

of Elliott Investment Management, is not expected to submit an

offer in this phase of competition, a source familiar with the

decision said, citing legal risks.

The Delaware court has been trying to auction Venezuela's

most prized overseas asset since 2017 to pay up to $20.6 billion

to 16 creditors for debt defaults and expropriations in the

South American country. The government of President Nicolas

Maduro has said the process constitutes the "robbery" of a

sovereign asset.

Houston-based Citgo, ultimately owned by Venezuela's state

oil company PDVSA, is the seventh-largest U.S. refiner.

A $3.7-billion offer by Contrarian Funds' Red Tree

Investments was approved by Delaware Judge Leonard Stark in

April as a starting bid. The investment firm and its rivals have

until May 28 to submit improved offers.

Following a June 11 deadline for a court officer to select a

winner, a final hearing in the auction of shares in PDV Holding,

one of Citgo Petroleum's parents, is scheduled for July 22.

The consortia still have time to tune up offers or decide

against bidding. A ruling earlier this week by a New York court

dismissing arguments by some companies that could have allowed

them to jump the line of creditors established in Delaware could

lead to changes in some bids, the sources said.

FIERCE COMPETITION

Robert Pincus, the court officer appointed by Stark to

oversee the auction, last year selected a $7.3-billion offer by

Elliott affiliate Amber Energy as the winner of the first

bidding round. But most creditors registered in the auction

ultimately rejected the proposal due to conditions preventing

the distribution of proceeds.

Pincus, who is being advised by investment bank Evercore ( EVR )

, this time selected Red Tree's lower offer to kick off

the bidding round due to what he described as its higher

certainty of closure, and as a mechanism to encourage "robust

competition."

The bid includes a separate $3 billion to settle

liabilities, mostly payments to Venezuela-linked bondholders,

and up to $1.5 billion in notes to pay junior creditors,

depending on Citgo's performance.

Red Tree for the first time reached a payment agreement with

holders of a defaulted Venezuelan bond collateralized with Citgo

equity, which would remove a key obstacle to distributing

proceeds from the auction to other creditors.

The selection of Red Tree's bid as a starting offer

unleashed a new battle among creditors, with some at the top of

a priority list to cash proceeds supporting it because they

would secure payments. Others further down the list said it was

too low, with some arguing that a rival $7.1-billion offer by

Gold Reserve's ( GDRZF ) consortium should have been chosen.

Though Stark has directed that price should be prioritized

over certainty of closure when the court officer recommends a

winner next month, Red Tree's agreement with the bondholders has

prompted others to seek similar deals, the sources said.

To bolster their ability to close a deal, the consortia have

retained banks to structure and improve their financing.

Red Tree is trying to improve all aspects of its starting

bid, a source close to its preparations said, while other

consortia are working to boost their financing or coverage of

junior creditors. The firm is "confident in the bid's price and

certainty of closing," the person said of Red Tree's offer.

Gold Reserve ( GDRZF ), Vitol, Amber Energy, Red Tree and a firm

representing holders of the Venezuelan 2020 bond declined to

comment. Citgo and boards supervising the refiner did not reply

to requests for comment.

BAD TIMING?

Citgo lost $82 million in the first quarter due to weak

margins, marking its second consecutive loss. Its liquidity, a

key metric for bidders, fell to $2.1 billion at the end of March

from $3.8 billion in December.

The company's net profit plummeted to $305 million in 2024

from about $2 billion the previous year.

The refiner's recent performance and separate lawsuits in

U.S. courts in pursuit of the same assets could limit the size

of the bids, analysts have said.

Lawyers representing Venezuela are fighting in Delaware for

a floor price to be set, so Citgo's assets are not auctioned for

a fraction of their value, which court advisers calculated at

$11 billion to $13 billion.

The process's complexity is also expected to make it

difficult for Pincus to set clear evaluation criteria acceptable

to the judge and most creditors, which could lead to new battles

and delays.

The auction's winner must be approved by the U.S. Treasury

Department, which has protected Citgo from creditors in recent

years.