HOUSTON/CARACAS, Jan 21 (Reuters) - Refining company Citgo Petroleum, the U.S. subsidiary of Venezuela's state-run oil firm PDVSA, is putting its midstream assets up as a guarantee for $2.5 billion in bonds and a loan that will be issued, according to data from Thomson Reuters IFR.
PDVSA had offered Citgo for sale until last month, when it received bids from at least four companies interested in the 750,000-barrel-per-day network, but it finally opted to raise cash by using the refining unit as vehicle, amid declining crude prices and difficulty finding money.
After a successful refinancing operation, Citgo offered President Nicolas Maduro's government the option of contracting new debt and transferring the money to Venezuela as an alternative to avoid a sale of its assets, according to sources.
In the offer letter of the refinancing operation finished in mid-2014, Citgo said in advance that it could hire another credit facility of $750 million to $1 billion.
"With the closing of this offering, we expect to enter into a new senior secured credit agreement, comprised of a revolving credit facility with a total borrowing capacity of between $750 million and $1 billion," the document says.
It adds that Citgo would use the money to repay outstanding debts, redeem any and all of its existing notes and pay a $300 million dividend to its shareholder, PDVSA.
The new debt operation, being handled by Deutsche Bank, also includes $1.5 billion in bonds and the money will be transferred to PDVSA. Citgo is also required to create a debt service reserve to cover six months of interest payments and maintain its debt to capitalization ratio below 75 percent.
Venezuela is struggling to find enough money to cover a growing fiscal deficit because of declining oil prices. Around 96 percent of Venezuela's dollar revenue comes from crude and products exports.
Venezuelan bonds have tumbled in recent months while investors worried the country would face difficulties to pay external debt and the government has tried to raise cash from allies such as China and Qatar.
PDVSA took its refining unit off the auction block after receiving offers from interested firms including Marathon Petroleum Corp, Valero Energy Corp and HollyFrontier Corp. Investors were not expecting the company to go to the market again soon.
A source close to the deal told Reuters a deteriorating political situation in Venezuela affected the sale attempt, as did cratering margins in the United States.
Nevertheless, another refinery with participation of Venezuela's PDVSA and operated by U.S. ExxonMobil, Chalmette in Louisiana, is still for sale.
"The benefit on Chalmette is that it has three months before it comes to a head. The market may have stabilized by then", the source said. (Reporting by Brian Ellsworth in Caracas and Marianna Parraga in Houston. Additional reporting by Corina Rodriguez in Caracas and Jessica Resnick-Ault in New York; Editing by David Gregorio)