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Global Credit Research - 19 May 2010
New York, May 19, 2010 -- Moody's Investors Service affirmed CITGO Petroleum Corporation's (CITGO)
Ba2 Corporate Family Rating (CFR) and assigned a Ba2 rating (LGD 3,
41%) to CITGO's $300 million Term Loan B facility
due 2015 and its $1.5 billion of senior secured notes,
downgraded the rating on its pollution control bonds to Ba2 (LGD 3,
41%), and upgraded the PDR rating to Ba2 from Ba3.
It also assigned a Ba1 rating (LGD 3, 39%) to the company's
proposed $700 million revolving credit facility due 2013.
The outlook for the ratings is stable. Moody's will withdraw
the existing Ba1 ratings for the Senior Secured Term Loan, Term
Loan B ratings and floating rate IRBs upon completion of the new financings.
CITGO will use most of the proceeds from the notes and Term Loan B to
repay $1.7 billion of outstanding Term Loans A & B and
its floating rate industrial revenue bonds. The new $700
million revolver will remain undrawn as a source of liquidity for CITGO.
The affirmation of the CFR reflects prospects for modestly improved financial
results in 2010, despite a continuing difficult refining environment,
the near-term expected settlement of the note receivable from its
parent, Petróleos de Venezuela (PDVSA), and the improved
liquidity and financial flexibility that CITGO will derive from the financings,
which also provide a strong collateral package to creditors.
CITGO sustained a net loss of $137.8 million in 2009,
driven primarily by narrowing light/heavy crude differentials and weak
product demand. Prospects for 2010 are modestly improved although
the company could again be cash flow negative after capital spending.
However, PDVSA has accelerated repayment of balances due under its
loan payable to CITGO, with the expectation that the intercompany
loan will be completely repaid sometime in the third quarter of 2010.
Including these proceeds, CITGO should be able to fully fund its
capital spending in 2010 without increasing debt. In addition,
while capital spending will remain elevated for investments to manufacture
ultra-low sulfur diesel, the company is taking steps to enhance
liquidity and working capital management.
CITGO's liquidity will improve as a result of the new financings,
with some $700 million in unused revolving credit capacity extended
to 2013, cash on the balance sheet, and the repayment of variable
rate IRBs that had required backing of letters of credit. The refinancing
will defer significant required debt reduction to beyond 2012, including
the amortizing Term Loan B.
Creditors also will benefit from an expanded collateral package including
all three of CITGO's large-scale refineries, its inventories,
and a portion of its accounts receivable. Collateral coverage,
including a fully drawn revolving credit, is estimated at 3.6X
total debt. While all of the creditors rank pari passu, in
default any borrowings under the revolving credit facility will have a
first claim on a significant portion of inventories and is cushioned by
significant liabilities below it in the capital structure. As a
result, the revolver is rated one notch above the Term Loan B,
senior secured notes, and other bonds, reflecting both the
revolver's relatively stronger overcollateralization and its smaller
share of CITGO's proforma capital structure.
Moody's notes that underlying the CITGO's Ba2 CFR is a baseline
credit assessment of 13 (corresponding to Ba3). CITGO, as
a wholly-owned subsidiary of PDVSA, is subject to joint default
analysis as a government-related issuer.
Moody's last rating action affecting CITGO occurred on September 29,
2009, when its ratings were downgraded.
The principal methodology used in rating CITGO was Moody's Global Independent
Refining and Marketing Industry rating methodology published in December
2009, and The Application of Joint Default Analysis to Government
related Issuers, published in April 2005. Both are available
on www.moodys.com in the Rating Methodologies sub-directory
under the Research & Ratings tab. Other methodologies and factors
that may have been considered in the process of rating this issuer can
also be found in the Rating Methodologies sub-directory on Moody's
CITGO Petroleum Corporation is headquartered in Houston, Texas.
Petróleos de Venezuela is located in Caracas, Venezuela.
Corporate Finance Group
Moody's Investors Service
Moody's Affirms CITGO Corporate Family Rating and Assigns New CITGO Ratings
Thomas S. Coleman
Senior Vice President
Corporate Finance Group
Moody's Investors Service
No Related Data.
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