Fitch Ratings has lowered its issuer-default rating on Citgo Corp. from BB to BB- upon news that the U.S.-based refiner (a business of PDVSA) will take out a $1-billion bridge loan to make a loan to parent PDVSA (which Fitch has an issuer-default rating of BB- with a negative outlook). “Under terms of the deal, Citgo plans to term out the debt on its own balance sheet with a combination of a secured term loan and accounts-receivable securitizations,” Fitch reports. “The move will increase Citgo’s leverage in the short term by approximately 80% and underscores Fitch’s long-term concerns about the use of Citgo’s cash flows and asset base to fund activity by (PDVSA), which is controlled by (Venezuela). On a forward-looking basis, Fitch also remains concerned about the possibility of additional financial pressure PDVSA may place on Citgo in a lower-priced oil environment.” The credit-rating agency adds that “this move follows a pattern of sizable distributions made from subsidiary Citgo to PDVSA through PDV America, including distributions of $1.74 billion for the 12 months ending Sept. 30, 2007.” Fitch is maintaining its secured credit rating on Citgo at BBB-. The agency bases this on the quality of Citgo’s collateral, including refineries at Lake Charles, La., and Corpus Christi, Texas. “The rating outlook (for Citgo) is stable and reflects the fact that the company must obtain approval from secured lenders for further asset-sale based distributions to its parent or additional secured debt on its balance sheet. Current covenants also subject the company to a 55% debt/capitalization ratio which limits total debt.” Oil and Gas Investor is an information source primarily for oil and gas producers. How does the Citgo matter involve this group? It doesn’t directly but the more debt Citgo takes on, the greater odds of default and U.S. and other lenders taking its assets. This would be vicarious compensation to U.S. oil and gas producers whose assets have been taken in Venezuela by PDVSA under the direction of Hugo Chavez. (See the previous blog entry, “From Citgo’s Pockets To PDVSA’s Programs.”)