Citgo Said to Offer 67% Premium on Loan Funding PDVSA Dividend

Citgo Holding Inc. is offering interest on a $1 billion loan that’s 67 percent above market rates, showing how expensive it’s become for riskier energy companies to borrow after oil prices tumbled.

The parent of Houston-based refiner Citgo Petroleum Corp. will pay 8 percentage points more than lending benchmarks for the loan that will help fund a dividend to state-owned Petroleos de Venezuela SA, according to a person with knowledge of the deal, who asked not to be identified because the information is private. The spread on new similarly rated loans sold to institutional investors was an average 4.79 percentage points on Jan. 15, according to Standard & Poor’s Capital IQ Leveraged Commentary & Data.

The dividend, which will also be financed with a $1.5 billion bond offering, is being sought to shore up PDVSA’s finances after crude plunged more than 55 percent in the last seven months. S&P assigned a B- grade to the loan, which is six levels below investment-grade. The ratings company grades the Venezuelan parent a step lower at CCC+.

Citgo plans to use $750 million of proceeds from both financings to buy storage terminals and minority interests in pipelines from Citgo Petroleum, according to S&P. The balance will pay a dividend to PDVSA.

Deutsche Bank AG is arranging the loan, which will have a one percent minimum on the London interbank offered rate, the benchmark typically used in corporate loans, the person said. The financing is being offered at a discount of 96 cents to 97 cents on the dollar, which boosts the yield further for investors.

PDVSA bought half of Citgo in 1986 from Southland Corp., which also owned the 7-Eleven retail chain, according to the Houston-based company’s website. The Venezuelan company acquired the rest in 1990.

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