Fitch cuts Citgo Petroleum senior unsecured rating
www.forbes.com Reuters, 01.10.03, 2:21 PM ET
(Full text of press release provided by Fitch Ratings. ) NEW YORK, Jan 10 - Fitch Ratings has downgraded the senior unsecured debt rating of CITGO Petroleum Corporation to 'BB-' from 'BBB-'. Fitch has also lowered the rating on the senior notes of PDV America, Inc. to 'B-' from 'BB+'. CITGO is owned by PDV America, an indirect, wholly owned subsidiary of Petroleos de Venezuela S.A. (PDVSA), the state-owned oil company of Venezuela. CITGO and PDV America remain on Rating Watch Negative.
The downgrades reflect Fitch's heightened concerns with the financial flexibility of both CITGO and PDV America due to the general strike in Venezuela, which has severely disrupted the country's oil exports. Earlier today, Fitch downgraded the long-term foreign currency rating of Venezuela and PDVSA to 'CCC+' from 'B' and the short-term foreign currency (Venezuelan bolivar) rating of Venezuela to 'C' from 'B'.
As a result of the strike, CITGO has been forced to find alternate sources for much of the crude supplied by PDVSA. CITGO typically purchases approximately 50% of its crude needs from PDVSA under long-term contracts. CITGO has been successful acquiring alternate crudes and other feedstocks to maintain refinery operations. However, spot market terms have increased working capital requirements and given the lowered credit ratings of CITGO related entities, additional working capital requirements are possible.
Near term obligations as well as a rating trigger in the company's trade accounts receivable program could significantly reduce CITGO's liquidity. Unless CITGO achieves a waiver, Fitch's downgrade will result in termination of the accounts receivable program. In mid-December, CITGO entered into a new $520 million credit facility, split into a $260 million three-year facility and a $260 million 364-day revolver. Concerns over the situation in Venezuela, however, have limited CITGO's ability to enter the capital markets for a planned bond issuance in the fourth quarter of 2002.
The CITGO downgrade and the more severe downgrade to the senior notes of PDV America are also based on the deteriorating creditworthiness of PDVSA and Venezuela. The $500 million of senior notes mature in August 2003 and are supported by Mirror Notes issued by PDVSA and held by PDV America. The senior notes and Mirror Notes have identical terms and conditions such that the interest income PDV America receives from PDVSA on the mirror notes pays the interest on the senior notes. In an absence of a return to normal oil operations, Fitch has significant concerns with the ultimate parent's ability and willingness to pay the maturity of the notes. In 1998 and 2000, dividends from CITGO were ultimately used to pay the $250 million tranches that matured in each of those years. Given CITGO's current financial situation, CITGO is not expected to pay any dividends to PDVSA to support PDV America's senior notes.
The situation in Venezuela remains highly volatile. Although Fitch expects CITGO to maintain operations, further deterioration in CITGO's financial position or the ultimate shareholders credit quality could result in additional downgrades.
CITGO is one of the largest independent crude oil refiners in the United States with three modern, highly complex crude oil refineries and two asphalt refineries with a combined capacity of 756,000 barrels per day. The company also owns approximately 41% interest in LYONDELL-CITGO Refining L.P. (LCR), a limited liability company that owns and operates a 265,000-barrel per day (BPD) crude oil refinery in Houston, Texas. CITGO markets refined products through approximately 13,400 independently owned and operated retail sites.