Elliott Affiliate's Citgo Bid to be Challenged

Companies seeking to claim proceeds from a court auction of shares in a parent of Venezuela-owned Citgo Petroleum are pressing a U.S. court to lift an exclusivity deal with an affiliate of Elliott Investment Management, which could pave the way for at least two new bids, sources close to the matter said.

The auction of shares in the U.S. oil refiner's parent PDV Holding, aimed at paying 18 creditors up to $21.3 billion in awards against Venezuela, has become stalled.

A conditional $7.3 billion bid in September by Elliott's wholly-owned Amber Energy for Venezuela's foreign crown jewel has been criticized by many of the creditors as inadequate and lawsuits by holders of Venezuelan bonds and notes are threatening to upend the seven-year-long court process.

Judge Leonard Stark, who is overseeing the case in a federal court in Delaware, this month said he would soon set a path for the auction to move ahead, and set a Dec. 13 hearing to listen to arguments.

Stark has been asked by creditors to reopen a data room to provide access to Citgo's financial documents to bidders, and terminate a period of exclusivity held by Amber Energy, according to court filings.

At least two companies have told the court they could present new bids once restrictions are lifted.

Canadian miner Gold ReserveGRZ.V, which submitted bids in the auction's first and second rounds, wants to revive a proposal that was set aside in August by a court officer managing the process. The officer had asked Gold Reserve to partner with U.S. oil refiner CVR Energy CVI.N, which had separately bid, but gave Amber exclusive negotiating rights shortly after.

Lawyers representing Venezuela also told the court they wanted to reserve the right to make a future bid to purchase the shares or to submit "more effective and equitable" proposals than a sale.

Amber did not reply to written questions. The company has told the court in recent weeks its bid would deliver the highest value for the shares, given the many challenges surrounding the process.

Its $7.3 billion bid values Citgo at 5.9 times Citgo's last 12-month pre-tax earnings plus cash and debt, below the market's 6.9 times earnings average multiple for three big, publicly-traded rivals, according to financial firm Tudor, Pickering, Holt.

"I can see why the creditors want a better number," said Tudor, Pickering refining analyst Matthew Blair.

The auction is expected to be the culmination of a long-standing case first introduced by Canadian miner Crystallex in Delaware in 2017 that made Citgo's parent liable for Venezuela's debts. The judge wants to maximize sale proceeds to pay off as many creditors as possible.

NEW BIDS?
Stark first must decide on two proposals - one by a court officer appointed to oversee the auction and another by creditor ConocoPhillips COP.N - that would both essentially block creditors from resorting to other courts in pursuit of the same assets. He is expected to rule on those motions in the coming weeks.

If the proposals are rejected, Amber can walk away from the process, according to an agreement it reached with the court officer, Robert Pincus.

Amber's original bid has not been accepted by the judge. In response to criticisms, Pincus last month presented a second bid by Amber modifying the structure of the payment waterfall, which would free about $5 billion for creditor payouts after the process is completed.

Amber's bid was being treated as "a stalking horse bid" - one that generally sets a minimum price in bankruptcy auctions - a person close to the matter said, adding that the lack of details provided about the bid made it difficult to match.

Another source said payout restrictions in Amber's bid would likely encourage other bids. Some companies say they can beat the Amber bid.

"Assuming the data room is reopened immediately, there should be no impediment to finalizing the terms of a materially superior Gold Reserve bid," an attorney for the mining firm told the court in a filing in October.

The company's prior bid was and remains "demonstrably superior to the Elliott bid in every material category," its filing said.

CVR is not expected to continue bidding, according to a person familiar with the matter. Neither Gold Reserve nor CVR Energy responded to requests for comment.

CREDITORS PROTEST
Amber's bid includes set-asides and deductions that have been criticized by many of the 18 creditors seeking proceeds.

"The Elliott bid is non-viable," said creditors Gold Reserve, Rusoro, Tidewater, Red Tree, Contrarian and Valores Mundiales in a joint argument.

Some parties protested that the bid's structure would not guarantee payments to the highest-ranked creditors - Crystallex, Tidewater TDW.N and ConocoPhillips COP.N.

Companies further down the creditors' list "would receive interests in a trust that may not pay them for years - if ever," said lower-ranked creditors Red Tree and Contrarian.

Several questioned whether Amber's bid met conditions set by the court. If Amber's bid included a credit bid from the acquisition of claims by Koch Industries that are low in the ranking, it would require the payment in cash of all claims above it in the creditors' list.

If creditors continue opposing bids, the court could be motivated to consider other alternatives, including a bankruptcy-like restructuring plan that would keep Citgo intact and provide a larger payout to creditors over time, analysts said.