Moody's Downgrades Citgo Senior-Secured Term Loans To Junk
September 29 2009 - 1:38PM
Dow Jones News
Moody's Investors Service has downgraded two indicators of the
financial health of Citgo Petroleum Corp., the U.S. refiner owned
by the Venezuelan government.
On Tuesday, Moody's announced that it has downgraded Citgo's
senior-secured term loan or long-term debt obligations from
investment grade to junk status. The investor service also assigned
an even riskier credit rating to the company's speculative bonds
because of its relationship to Venezuela's Petroleos de Venezuela
SA, or PdVSA.
The move is another is another example of PdVSA's weakness in
the U.S.
Earlier this month, Moody's raised its outlook for the Merey
Sweeny L.P. refinery in Texas based on the possibility that
ConocoPhillips (COP) would buy out PdVSA's 50% stake in their joint
venture. The move edged Merey Sweeny's outlook closer to that of
ConocoPhillips given its investment-grade debt versus PdVSA's
riskier ratings.
In the first half of 2009, Citgo sustained a net loss of $105
million because of lower product sales and the diminishing discount
on heavy oil, according to Moody's.
A few years ago, many U.S. refiners were able to boost profits
by processing cheaper heavy crude compared to higher quality light,
sweet blends, but with the recession, that discount has shrunk and
so have refiners profits.
Citgo's results were also poor because of its social
responsibility program, which provides heating oil to low income
Americans-a favorite cause of Hugo Chavez, the president of
Venezuela.
However, Moody's expects the Citgo's net losses to ease somewhat
for the full year.
"Earnings and cash flow will remain under pressure in 2010," the
report from Moody's said.
Citgo operates three refineries located in Lake Charles, La.,
Corpus Christi, Texas and Lemont, Ill. The plants have a combined
capacity of 749,000 barrels a day.
-By Susan Daker and Naureen S. Malik, Dow Jones Newswires; (713)
547-9208; susan.daker@dowjones.com