TEXT-Moody's affirms CITGO Petroleum snr unsecured rtg - Approximately $1.1 Billion of Debt Affected
reuters.com Thu February 27, 2003 04:01 PM ET (The following statement was released by the rating agency)
NEW YORK, Feb 27 - Moody's Investors Service confirmed the Ba3 senior implied and senior unsecured long-term ratings of CITGO Petroleum Corporation, concluding a review of those ratings for possible downgrade. The outlook for those ratings remains negative.
At the same time, Moody's assigned a rating of Ba2 with a negative outlook to CITGO's $200 million senior secured Term B Loan. The ratings confirmations reflect CITGO's enhanced liquidity position following the expected completion of three financings totaling $950 million.
The financings will alleviate near-term liquidity stress stemming from the disruptions in crude deliveries under CITGO's long-term crude supply agreements with affiliates of its parent, Petroleos de Venezuela (PDVSA, rated Caa1, developing outlook). They include a $550 million Senior Note issue and a $200 million senior secured three year term loan, together providing $750 million of new cash, and a $200 million accounts receivable facility that will provide replacement funds for a similar recently canceled facility. These funds will help address CITGO's working capital needs, including the impact of shortened payment terms on third party crude purchases and maturing bank letters of credit that will need to be repaid or refinanced.
Moody's also has factored into the ratings the expectation that, to the extent CITGO maintains adequate liquidity for its own internal needs, these financings will provide cash to retire some portion of PDV America's $500 million of senior notes that mature in August 2003. The Ba2 rating for the senior secured loan, which is one notch above CITGO's senior unsecured ratings, reflects the underlying quality of the pipeline assets and liquidity of the stock being provided as collateral to lenders.
The $200 million loan will be secured by CITGO's 15.8% equity stake in Colonial Pipeline Company (rated A2/Prime-1) and 6.8% stake in Explorer Pipeline Company (rated Prime-1), two common carrier product pipelines with stable cash flows and fairly ready equity valuations based on cash flow multiples and other recent transactions. Moody's is maintaining a negative outlook on all the ratings, reflecting continuing uncertainty over the impact of reduced crude production and exports from Venezuela on CITGO's operations and working capital needs, and the possibility that future actions by CITGO to undertake additional secured financings could result in the notching down of its senior unsecured ratings. The rating agency notes that PDV America Inc. continues to be rated Caa1 with a developing outlook.
CITGO's recent financings increase the likelihood that dividends will be available to retire at least a portion of PDV America's $500 million senior notes at maturity. However, the dividend will be subject to CITGO's own liquidity needs, and PDVSA's other cash sources to retire PDV America's debt are uncertain at this time.
CITGO Petroleum Corporation is headquartered in Tulsa, Oklahoma.