By Marianna Parraga
HOUSTON (Reuters) -A U.S. court officer is preparing to recommend a winner in an auction for shares of Citgo Petroleum’s parent company, with affiliates of hedge fund Elliott Investment Management and miner Gold Reserve leading the competition for the U.S. refiner.
U.S. court officer Robert Pincus faces a Monday deadline to determine whether a $7.4 billion bid from Gold Reserve’s subsidiary Dalinar Energy, which he previously recommended, remains the frontrunner or a rival offer is superior.
Elliott’s affiliate Amber Energy, a unit of commodities firm Vitol and a consortium led by private equity firm Black Lion Capital Advisors submitted offers in the final stages of the bidding. That prompted the court to extend the bidding deadline to Friday and delay a final sale hearing to September.
Amber and Gold are now neck-to-neck in the competition, with other bidders falling behind, according to court filings and sources close to the offers’ preparations. But their offers differ substantially.
Among the main differences are the amount of cash offered versus non-cash considerations, and a key negotiation to pay holders of a Venezuelan defaulted bond collateralized with Citgo equity.
Amber told the Delaware court this week it reached a pact with more than two-thirds of the holders. The Gold Reserve group, whose bid does not include a payment provision to the bondholders, is betting its offer will be deemed superior due to its coverage of 11 of the 15 claimants lining up to cash proceeds.
Judge Leonard Stark earlier this year instructed Pincus and court advisors in the auction to prioritize price over “certainty of closure,” a term defining a proposal’s chances of becoming a real takeover.
Amber, whose bid offers $5.86 billion to creditors and $2.86 billion to the bondholders, is required to show proof to the court of its agreements. The Gold Reserve group has the option of objecting to any competing bid due to procedural issues. It can also boost its own offer if it loses.
Amber and Dalinar did not immediately reply to requests for comment.
Under a new calendar approved by the court on Friday, Gold Reserve’s Dalinar will only have three days to match any superior proposal. Gold Reserve said on Friday it engaged investment bank Cantor Fitzgerald & Co as financial advisor in connection with its bid.
A potential strategy by Dalinar to raise its bid could involve adding more creditors to its proposal, something that is in negotiation, the sources said.
Amber also has been in talks with at least two creditors in the auction willing to turn their claims into credit bids, according to one of the sources.
Credit bids are accepted in some auctions to allow creditors lining up for the proceeds to acquire the assets or shares up for auction in exchange for the debt owed. In this case, credit bids must be combined with cash offers, the court has said.
The auction aims to pay up to $19 billion to 15 creditors as compensation for debt defaults and expropriations in Venezuela. The court, which has been handling the case since 2017, found Citgo’s parent PDV Holding liable for Venezuela’s debts.
(Reporting by Marianna Parraga; Editing by Christian Plumb and Daniel Wallis)
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