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18 Dec 2013
New York, December 18, 2013 -- Moody's Investors Service downgraded the foreign currency bond rating
and global local currency rating of Petróleos de Venezuela (PDVSA)
to Caa1 from B2 and B1, respectively, and maintained a negative
outlook on the ratings. Moody's also downgraded CITGO Petroleum
Corporation's Corporate Family Rating to B1 from Ba2; its Probability
of Default rating to B1-PD from Ba2-PD; and its senior
secured ratings on term loans, notes and industrial revenue bonds
to B1, LGD3-43% from Ba2, LGD3-41%.
Moody's also assigned a rating of Ba3, LGD3-30% to
CITGO's senior secured bank credit facility. The rating outlook
for CITGO is negative. CITGO is PDVSA's wholly-owned
US-based refining subsidiary.
The rating actions follow Moody's downgrade on December 16,
2013 of the Venezuelan government's foreign currency and local currency
bond ratings to Caa1, from B2 and B1, also with a negative
outlook. The sovereign rating action reflects concerns over the
Venezuela's severe economic stress in the post-Chávez
era, reflected in rising economic imbalances. These imbalances
are exacerbated by government policies, which have resulted in high
inflation, a huge disconnect between official and parallel market
foreign currency exchange rates, a scarcity of many essential goods
and services, and deterioration in the country's external
accounts and foreign currency reserves.
RATINGS RATIONALE
In downgrading PDVSA's ratings to equal those of the government,
Moody's acknowledges the state oil company's substantial oil
and gas resources, among the largest in the world, and that
the company to date has never defaulted on its debt obligations.
In addition, PDVSA's on-balance-sheet debt obligations
remained relatively unchanged at $39.3 billion as of its
latest June 30, 2013 interim financial statements.
However, PDVSA's ratings reflect it its key role as the state
oil company and the government's control over PDVSA's finances
and access to foreign currency. PDVSA is a driver of Venezuela's
economy, a key source of the government's revenues and the
country's primary source of foreign exchange. The government
approves and controls PDVSA's budget and has steeply increased its
transfer payments over the past few years in the form of royalties,
social payments and dividends to support government spending and social
programs, a trend that accelerated in the run-up to the presidential
election in 2012. At the same time, PDVSA is borrowing heavily
from the Central Bank of Venezuela, with drawings of equivalent
$40 billion as of the end of November 2013, according to
bank reports.
Under a scenario of fiscal and economic deterioration in Venezuela in
the post- Chávez era, the government could become
even more dependent on PDVSA, which would further constrain the
state oil company's capital investments and increase an already
rising debt burden.
As a government-related issuer, PDVSA's ratings reflect
a high level of imputed government support and default correlation between
the two entities. Any future negative ratings action affecting
the government's ratings, which have a negative outlook,
would also be likely to result in a downgrade of PDVSA's ratings
as well.
The downgrade of CITGO Petroleum's ratings with a negative outlook
primarily reflects heightened risk associated with PDVSA's ownership
and financial stress. While CITGO's assets are located in
the US and its credit agreements provide certain protections to lenders,
including limitations on dividends, it lacks an independent board,
with its members and senior management appointed by PDVSA. Meanwhile,
the refineries continue to generate good financial results, fund
capital spending internally, and maintain a solid liquidity profile,
including cash and committed bank facilities.
The principal methodology used in this rating was the Global Integrated
Oil & Gas Industry published in November 2009 and Global Refining
and Marketing Rating Methodology published in December 2009. Other
methodologies used include Loss Given Default for Speculative-Grade
Non-Financial Companies in the U.S., Canada
and EMEA published in June 2009; and the Government-Related
Issuers methodology published in July 2010. Please see the Credit
Policy page on www.moodys.com for a copy of these methodologies.
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for additional regulatory disclosures for each credit rating.
Thomas S Coleman
Senior Vice President
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Steven Wood
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's downgrades ratings of PDVSA and CITGO Petroleum
No Related Data.
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