Fitch Ratings warned Monday that Citgo Petroleum is a default risk following the recent arrests of the Houston refining company's top leadership in Venezuela.
The major credit ratings agency downgraded Citgo to a negative watch list with a "CCC" rating that describes Citgo as a substantial credit risk with a real possibility of defaulting. Citgo previously held a "B-" as a highly speculative risk that was still functioning OK financially. (Fitch is majority-owned by the Hearst Corp., the parent company of the Houston Chronicle.)
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Citgo officials did not immediately respond to a request for comment.
Citgo is a U.S. company with a more than 100-year history that was acquired by Venezuela's state-run oil company nearly 30 years ago. Citgo now acts as the U.S. refining and gasoline marketing arm of Venezuela.
Last month, the Venezuelan government arrested six of Citgo's top Texas-based executives, including five U.S. citizens, on embezzlement and corruption charges, and installed Asdrúbal Chávez as its new president and CEO, a cousin of the late Venezuelan president Hugo Chávez.
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Fitch noted that Citgo could face default next year on a more than $600 million loan. Fitch also noted the arrests and the deteriorating political instability in Venezuela, including the possibility of increased U.S. sanctions placed on the country.
Citgo's potential saving grace is its quality U.S. assets. Citgo owns oil refineries in Corpus Christi, Lake Charles, Louisiana, and Illinois. The company also has roughly 160 branded gas stations in the Houston area, and about 5,500 nationwide.
Venezuela, which sits on the world's largest proven oil reserves, is also the third largest exporter of oil to the United States and a key supplier to Gulf Coast refineries which are built to process heavier grades of crude, such as those produced in Venezuela....Read more