Turning to bank loans after bond sale fails is Citgo

Given the BP oil spill disaster, it isn't a surprise that oil-refining company Citgo is having problems getting financing. By selling bonds, they wanted to raise $ 1.5 billion. However, the business that they are in and the fact the company is “exposed” to Venezuela made this sale a flop. Now, the company is turning to $ 2 billion in bank loans combined with just $ 300 million in bonds.

Resource for this article: Citgo has bond sale fail, turns to bank loans by Personal Money Store

The bond sale ends up failing

Citgo, which is the child company of Venezuelan PDVSA, ran at a net operating loss for the first quarter of the year. In order to raise a little bit of 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 weren't interested.

To the rescue are bank loans

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 banks, and it was able to raise $ 2 billion. That money is partially from new credit that has been 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 have said that they are planning on turning these loans into bonds — in other words, spreading the risk out among many, many more investors.

Operating loss from Citgo

Citgo lost money last quarter for many reasons. There is political instability in Venezuela, where Citgo’s parent company lives. Though Venezuela’s state-owned oil company does not do much drilling that is offshore, 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.