A U.S. federal judge has ruled that defaulted bonds issued by Venezuela’s state oil company PDVSA in 2016 remain valid, strengthening creditors’ claims on Citgo, the company’s prized U.S. refining subsidiary, Reuters reported.
U.S. District Judge Katherine Polk Failla in Manhattan said Thursday that PDVSA’s 2020 bonds were properly issued under Venezuelan law, rejecting the company’s argument that they had been unauthorized. The bonds are secured by a majority stake in Citgo Holding Inc., which operates refineries in Louisiana, Texas, and Illinois with capacity to process nearly 800,000 barrels per day.
PDVSA defaulted on the bonds in 2019, and since then Citgo has hung in the balance as courts weigh competing creditor claims. Failla had already upheld the bonds’ validity in 2020, but an appeals court ordered a deeper review, triggering years of litigation. Her latest ruling is seen as a major setback for Caracas, which had hoped to shield its U.S. assets from seizure, according to Reuters.
The decision comes as a Delaware court conducts a separate auction process to distribute shares of Citgo’s parent company, PDV Holding, to satisfy other creditor claims. That proceeding was temporarily suspended on Thursday to allow the court to examine the implications of Failla’s ruling.
For Venezuela, the loss of Citgo would be a heavy blow. The Houston-based refiner has long been considered PDVSA’s “crown jewel” abroad, providing not only foreign currency earnings but also a foothold in the U.S. downstream market. As Oilprice has noted, the asset has grown even more strategic as Venezuela’s domestic refining system crumbles under years of underinvestment and sanctions.
With creditors ranging from bondholders to companies with arbitration awards circling Citgo’s equity, Thursday’s ruling deepens uncertainty over how long Caracas can maintain any influence over its most valuable foreign subsidiary.
By Charles Kennedy for Oilprice.com
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