Fitch: Citgo on negative watch

Fitch Ratings said it placed the ratings of Citgo Petroleum Corp. and Citgo Holding Inc. on Rating Watch negative following PDVSA's announced debt-exchange offer.

PDVSA (Petroleos de Venezuela SA) said it expects to issue new 8½% sinking notes due 2022 under a voluntary exchange for two existing bonds: a 8½% sinking bond with $2.05 billion principal payments due in November 2016 and November 2017 and $3 billion 5¼% bond due in 2017.

The exchange offer, if successful, has the potential to increase Citgo’s bondholders' exposure to PDVSA default risk through the use of 50.1% of Citgo Holding stock as collateral for the new PDVSA notes, Fitch said.

Existing debt indentures at Citgo Petroleum and Citgo Holdings contain change of control provisions that could potentially be exercised if the new PDVSA notes default and there is foreclosure on collateral, namely the majority stake in Citgo Holdings, the agency said.

Fitch said it intends to resolve the negative watch following the expiration of the announced PDVSA exchange offer, which is scheduled for Oct. 14.

There is a relatively strong operational linkage between Citgo and the parent company, PDVSA, the agency said.

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