Investors last week jumped all over the fat coupon on a $200 million, three-year "B" loan for CITGO Petroleum. The deal was priced at LIBOR plus 51/ 4%, a big hike from the spread of about 100 basis points over LIBOR for previous facilities. The deal closed in three days and is already allocated. The Credit Suisse First Boston-led deal accompanies a $550 million bond deal and a $200 million accounts receivable facility. The stiff pricing boost is most likely a result of all the uncertainty in the market over Venezuela, said Thomas Coleman, senior v.p. at Moody's Investors Service. "The market is extracting a huge premium," he stated. The company's cash flow has been affected directly and indirectly because of the oil strikes and political shakeups in Venezuela.
Petroleos de Venezuela S.A. (PDVSA), the state-owned oil company of Venezuela and an indirect parent of CITGO, has not been supplying the usual amounts of crude oil to CITGO, causing it to tap other, more expensive suppliers in the spot market. A recent company filing reported, "a number of trade creditors have sought to tighten credit payment terms on purchases that we make from them. That tightening would further increase our cash needs and further reduce our liquidity." CSFB Bankers did not return calls before press time.
The company acknowledged that recent downgrades knocking it down to speculative-grade by ratings agencies have further affected its financial pressures. Moody's Investors Service rated the term loan Ba2 last Thursday, while bankers expect Standard & Poor's to rate the loan at B+. The company cited in the filing that one of the downgrades caused a termination event under its existing accounts receivables sale facility, which ultimately led to the repurchase of $125 million in accounts receivables and cancellation of the facility on Jan. 31.
The downgrades rendered CITGO's uncommitted lines of credit unavailable. But the company's revolving credit facilities do remain available. Bank of America and J.P. Morgan closed a $520 million revolver deal for CITGO last December, priced at LIBOR plus 117.5 basis points. Questions to CITGO finance officials were referred to a spokesman who did not return calls by press time.