Default warning on Citgo

Fitch Ratings warned Monday that Citgo Petroleum is at risk of default after the recent arrests of the Houston refining company’s top leadership in Venezuela and the continuing financial problems of its parent, Venezuela’s national oil company.

The 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 financially. (Fitch is majority-owned by the Hearst Corp., the parent company of the Houston Chronicle.)

Citgo officials declined comment.

Citgo, which is headquartered in Houston, is a U.S. company with a more than 100-year history that was acquired by Venezuela’s state-run oil company, PDVSA, nearly 30 years ago. PDVSA has recently missed debt payments and is coming under more pressure as the Trump administration imposes sanctions on the government of President Nicolas Maduro, who arrested opposition leaders as well as top energy officials.

Citgo now acts as the U.S. refining and gasoline marketing arm of PDVSA. 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 Asdrubal Chavez as its new president and CEO, a cousin of the late Venezuelan president Hugo Chavez, Maduro’s mentor.

Fitch noted that Citgo could face default next year on a more than $600 million loan. Fitch also cited the deteriorating political instability in Venezuela, which could become worse if the U.S. increases sanctions.

Citgo’s potential saving grace is its quality U.S. assets, Fitch noted. Citgo owns oil refineries in Corpus Christi, Lake Charles, La., 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 U.S. and a key supplier to Gulf Coast refineries, which are built to process heavier grades of crude, such as those produced in Venezuela. It has about 4,000 U.S. employees, including about 800 in Houston.