Citgo turns to bank loans after bond sale fails

Given the BP oil spill disaster, it is no surprise that oil-refining company Citgo is having problems getting financing. The company wanted to raise $ 1.5 billion by selling bonds. However, the business they are in along with the fact that 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.

Article Resource: 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 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's bonds were slated for 2017 maturity, meaning that any investor who had bought them would have to wait seven years to get paid back. Investors, though, were not interested.

Bank loans are going to 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 private money lenders, and it was able to raise $ 2 billion. That money is 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, however, have said that they are planning on turning these loans into bonds in the future– in other words, spreading the risk out among many more investors.

Operating loss from Citgo

For many reasons, Citgo lost money in the last quarter. There is political instability in Venezuela, which is where Citgo’s parent company lives. 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.