A U.S. federal judge approved a $3.7 billion bid from Red Tree Investments, an affiliate of Contrarian Funds, as the initial offer in an auction of shares in Citgo Petroleum’s parent company. This decision, made on Monday, sets the stage for an auction aimed at settling debts with creditors and bondholders.
The offer was recommended by a court officer overseeing the auction and triggered a dispute among 16 creditors. Some creditors supported the bid because it includes a payment agreement with holders of a bond issued by Citgo’s parent company, Venezuela’s PDVSA. However, other creditors argued that the offer was too low.
A rival bid of $7.1 billion from a consortium led by the mining company Gold Reserve, along with objections from other creditors and lawyers representing Venezuela, was overruled by U.S. District Judge Leonard Stark. He stated that Red Tree’s bid struck the best balance between price and the certainty of closing the deal, encouraging further competition.
Judge Stark also instructed court officer Robert Pincus to suggest a period for higher bids, with the goal of selecting a final offer by the end of July. Pincus was asked to prioritize the price of the bids over certainty in his final recommendation.
Last year, a previous bidding round saw most creditors reject a $7.3 billion offer from an affiliate of hedge fund Elliott Investment Management due to conditions tied to the deal. This time, Red Tree’s bid is expected to encourage competing proposals that could pay up to $3 billion to holders of PDVSA’s 2020 bonds, which are secured by Citgo equity.
Citgo’s value is estimated between $11 billion and $13 billion, with final offers in the auction expected to remain below $8 billion. A higher payout to the bondholders would reduce the amount available to other creditors, including foreign oil producers, mining companies, and industrial groups whose Venezuelan assets were expropriated.
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