Given the BP oil spill disaster, it is no surprise that oil-refining company Citgo is having problems getting financing. Originally, the company was looking to raise $ 1.5 billion by selling bonds. However, the business they are in combined with the fact the company is “exposed” to Venezuela made this sale a flop. Now, the company is turning to $ 2 billion in bank loans combined with somewhere around $ 300 million in bonds.
Resource for this article: Citgo has bond sale fail, turns to bank loans by Personal Money Store
Bond sale fail
Citgo, the child company of Venezuelan PDVSA, has been running at a net operating loss for the first quarter of the year. In order to raise a little bit of quick cash to run the company with, the company tried to sell $ 1.5 billion in bonds. Bonds are a group of little loans, where the company must repay the bond plus interest to investors. Citgo bonds were slated for 2017, meaning any investor who bought them would have to wait seven years to get paid back. Investors didn't seem interested.
Bank loans to the rescue
Because the pay day of bonds didn’t seem to pan out, Citgo was forced to find other options for money loans. The company turned to banks, and it was able to raise $ 2 billion. That money is partially from new credit extended to the company, and partially from “extension of existing credit lines.” These lenders don't want to risk extending credit to Citgo. These lenders have said that they are planning on turning these loans into bonds — in other words, spreading the risk out among many, many more investors.
Citgo's great operating loss
Citgo lost money last quarter for many reasons. There is political instability in Venezuela, where Citgo’s parent company are from. Though Venezuela’s state-owned oil company does not do much offshore drilling, the BP oil spill is generally affecting the oil and fuel market. This instability within the market is contributing to all of the companies like Citgo being unable to get financing to continue operations.
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