By Nymia C. Almeida
NEW YORK -- Moody's Investors Service downgraded CITGO Petroleum Corporation (Citgo Petroleum)'s Corporate Family Rating to Caa1 from B3; its Probability of Default rating to Caa1-PD from B3-PD; and its senior secured and unsecured ratings on term loans and global notes and IRB's to Caa1 (LGD4) from B3 (LGD4). The rating on Citgo Petroleum's senior secured revolving credit facility was downgraded to B3 (LGD4) from B2 (LGD3).
Furthermore, Moody's downgraded CITGO Holding, Inc. (Citgo Holding)'s Corporate Family Rating to Caa2 from Caa1; and its senior secured ratings on term loans and global notes Caa2 (LGD4) from Caa1 (LGD4).
The ratings outlook for Citgo Petroleum and Holding was changed to negative from stable.
The rating actions follow Moody's downgrade on November 6th, 2017 of Petroleos de Venezuela S.A. (PDVSA)'s ratings to Ca from Caa3 given the company's payment default on November 2nd, related to the 2017 notes, and Moody's expectation that PDVSA will default on other debt obligations in the near term given its significant financial stress and the government's stated intention to restructure its debt. PDVSA is the ultimate controlling shareholder of Citgo Petroleum and Citgo Holding.RATINGS RATIONALE
The downgrade of Citgo Petroleum's and Citgo Holding ratings and the change of outlook to negative from stable primarily reflects heightened risk associated with PDVSA's ownership and financial stress. While both companies' assets are located in the US and their 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 ratings of the senior secured credit facility and other classes of debt reflect their priority claim under Moody's Loss Given Default methodology. The companies' senior secured credit facilities are rated one notch higher than their respective Corporate Family Ratings because of its priority claim to certain assets of the companies. The remaining debt is rated at the same level as the Corporate Family Ratings.
Citgo Petroleum Corporation, based in Delaware, US, is an independent refining company with 749,000 bpd of capacity in three large refineries that have good logistical and market positions in the US Gulf Coast and Midwest markets.
Citgo Petroleum is a wholly owned subsidiary of PDVSA, the state oil company of Venezuela. As of June 2017, Citgo Petroleum reported assets and EBITDA of $7.5 billion and $1.3 billion, respectively.
Citgo Holding, Inc, based In Delaware, US, is holding company with no direct operations and no significant assets other than its ownership of 100% of the capital stock of Citgo Petroleum Corporation (Citgo Petroleum, Caa1 negative) and 100% of the limited liability company interests of Citgo Holding Terminals, Southwest Pipeline Holding and Midwest Pipeline Holding, all operating companies.