US shields Citgo from bondholders for now

The US administration will continue to shield Venezuelan state-owned PdV's US refining subsidiary Citgo from PdV 2020 bondholders but is encouraging the parties to restructure or refinance the defaulted debt.

The holders of the PdV 2020 bond backed by shares in Citgo have been unable to access the collateral after the US Treasury Department's sanctions enforcement arm, the Office of Foreign Assets Control (OFAC), began issuing general licenses in 2019 that suspend its 2018 authorization to enforce their claim. Another license issued by OFAC today extends the protection until 21 October — a shorter period than the previous six-month extension.

OFAC reiterated its support for the parties to reach agreement "on proposals to restructure or refinance payments" owed to the bondholders.

Critics of the US policy of shielding Citgo say a parallel US ban on Venezuelan bond transactions by US persons has meanwhile changed the underlying ownership of the PdV 2020 bonds out of US hands, as the original holders give up on striking a deal for payment.

The PdV 2020 bondholders are one of a large group of creditors pursuing Citgo to satisfy their claims. The most advanced of those cases is a legal proceeding in the US District Court for the District of Delaware, involving New York hedge fund Tenor Capital Management, ConocoPhillips and other creditors. Citgo has 760,000 b/d of capacity across three US refineries.

The court has appointed a "special master" — a representative to oversee the sale of Citgo to satisfy claims against it — but has deferred to OFAC for authorization to allow such a sale. Parties to the dispute — hoping to satisfy legal claims against Venezuela — have also told the court they had communications with Treasury's sanctions experts to allow the sale to proceed.

At least in the claim advanced by the PdV 2020 bondholders, OFAC indicates that a lifting of the suspension of their existing authorization could be forthcoming. Treasury's guidance today notes, with respect to the bondholders, that it "would encourage parties to apply for a specific license and would have a favorable licensing policy toward such an agreement."

Venezuela's US-backed political opposition nominally controls Citgo since 2019, when the US recognized then-National Assembly president Juan Guaido as interim president in place of incumbent Nicolas Maduro. Guaido's domestic and international support has since waned.

Maduro, who has held onto power in spite of the US sanctions, maintains control over Citgo's parent PdV in Caracas.

Although US president Joe Biden's administration continues to recognize Guaido's authority, there is little appetite for the Venezuela sanctions it inherited from former president Donald Trump, and the White House is encouraging the parties to negotiate a political compromise in tune with EU strategy. In a first departure from the oil sanctions, the Biden administration recently authorized LPG sales to Venezuela but without allowing crude swaps.

By Patricia Garip and Haik Gugarats