Citgo has bond sale fail, turns to bank loans


Citgo is trying desperately to raise enough money to continue operations. Image from Flickr.

Given the BP oil spill disaster, it is no surprise that oil-refining company Citgo is having problems getting financing. Originally, the company was looking to raise $1.5 billion by selling bonds. However, the business they are in combined with the fact the company is “exposed” to Venezuela made this sale a flop. Now, the company is turning to $2 billion in bank loans combined with just $300 million in bonds.

Bond sale fail

Citgo, which is the child company of Venezuelan PDVSA, has been running at a net operating loss for the first quarter of the year. In order to raise quick cash to run the company with, the company tried to sell $1.5 billion in bonds. Bonds are a group of individual little loans, where the company must repay the bond plus interest to investors. Citgos bonds were slated for 2017 maturity, meaning any investor who bought them would have to wait seven years to get paid back. Investors, though, were not interested.

Bank loans to the rescue

Because the pay day of bonds didn’t pan out, Citgo was forced to find other options for money loans. The company turned to banks and private money lenders, and it was able to raise $2 billion. That money is partially from new credit extended to the company, and partially from “extension of existing credit lines.” In other words, these lenders were willing to take on the risk of extending credit to Citgo. These lenders, however, have said that they are planning on turning these loans into bonds — in other words, spreading the risk out among many, many more investors.

Citgo’s operating loss

The operating loss that Citgo had over the last quarter is for many reasons. There is political instability in Venezuela, where Citgo’s parent company lives. Though Venezuela’s state-owned oil company does not do much offshore drilling, the BP oil spill is generally affecting the oil and fuel market. This instability within the market is contributing to companies like Citgo being unable to get financing to continue operations.