Latest Developments in the CITGO Sale Process
CITGO Sale Gold Reserve has announced that a $7.1 billion bid submitted by its U.S. subsidiary, Dalinar Energy Corporation (“Dalinar Energy”), was not selected as the “Stalking Horse” or “Base Bid” in the ongoing sales process for the shares of PDV Holding, Inc. (“PDVH”), the indirect parent company of CITGO Sale Petroleum Corp. This process is being conducted under the supervision of the U.S. District Court for the District of Delaware (the “Court”). Despite Dalinar Energy’s bid being significantly higher than the chosen bid, the Special Master overseeing the process did not recommend it for approval.
Details of the Bid Submission
Dalinar Energy’s bid, backed by fully committed financing from two major financial institutions, was valued at over $7.1 billion. This proposal was made public following disclosure by the Special Master. The terms of Dalinar Energy’s proposal, along with information on other competing bids, can be accessed at Gold Reserve’s official site.
Despite the substantial financial commitment and structured proposal put forth by Dalinar Energy, the Special Master recommended a significantly lower bid of $3.699 billion from Red Tree Investments, an indirect subsidiary of Contrarian Funds, LLC, an affiliate of Contrarian Capital Management, LLC (collectively referred to as “Contrarian”). The official recommendation from the Special Master can be reviewed at this link.
Concerns Raised by Dalinar Energy
Gold Reserve and Dalinar Energy have voiced strong concerns regarding the Special Master’s decision, particularly for the following reasons:
- Significant Valuation Gap: Dalinar Energy’s bid exceeded the Contrarian bid by approximately $3.382 billion, a disparity of more than 91%. The decision to recommend a bid with substantially lower financial value raises concerns about whether the best interests of stakeholders are being adequately served.
- Lack of Transparency: Key documents related to the Contrarian bid, which played a role in the Special Master’s recommendation, were not made publicly available. This lack of transparency has raised concerns about the fairness of the selection process.
Legal Action and Court Proceedings
In response to these concerns, Gold Reserve has taken legal action by filing an emergency request with the Court, seeking access to the non-public documents that influenced the recommendation. This emergency request can be reviewed at this link.
The Court has acknowledged the concerns and has set an expedited briefing schedule regarding the motion, with a potential hearing scheduled for March 27, 2025. Until the Court issues a ruling on Gold Reserve’s emergency request, the deadline for objections to the Special Master’s Stalking Horse Bid recommendation has been temporarily stayed.
Key Financial and Structural Aspects of Dalinar Energy’s Proposal
Dalinar Energy’s bid was supported by a consortium of judgment creditors that hold priority over Gold Reserve in the Court’s established priority waterfall. These included:
- Koch Minerals Sarl and Koch Nitrogen International Sarl (collectively, “Koch”)
- Rusoro Mining Ltd. (“Rusoro”)
The overall purchase price of $7.1 billion was structured as follows:
- Approximately $3.9 billion allocated to satisfying claims from senior creditors in the priority waterfall.
- Around $3.2 billion in equity capital contributed by Koch, Rusoro, and Gold Reserve.
- A mechanism allowing junior creditors to participate by receiving warrants in Gold Reserve in exchange for contributing a portion of their attached judgments, as outlined in the warrant certificate.
Strong Financial Backing and Commitment
Dalinar Energy’s proposal included robust financial backing from major financial institutions:
- JPMorgan Chase Bank, N.A. and TD Bank provided 100% commitment papers on up to a $6.5 billion committed debt financing package.
- Of this amount, $4.85 billion would have been available at closing, with an additional $1.65 billion in asset-based lending available post-closing.
Company’s Response and Future Plans
CITGO Sale Paul Rivett, Chief Executive Officer and Executive Vice-Chair of Gold Reserve, expressed deep disappointment with the Special Master’s decision. He emphasized the company’s extensive efforts in structuring a bid that ensured financial recovery for all stakeholders involved in the Delaware waterfall process.
“CITGO Sale We are very disheartened that after many years in this process and working tirelessly to put together a winning bid, Dalinar Energy’s fully priced and substantially higher $7.1 billion bid was not recommended as the Stalking Horse Bid. Our bid provided recovery for all senior claimants in the Delaware waterfall and a potential recovery for all junior claimants via the equity warrants. CITGO Sale We are considering all of our legal options and look forward to our continued participation in the Delaware CITGO Sale proceedings,” said Rivett.
Implications for Stakeholders
The exclusion of Dalinar Energy’s bid raises multiple concerns regarding the fairness of the process and its implications for various stakeholders:
- Creditors’ Recovery: The lower bid recommended by the Special Master may limit financial recoveries for both senior and junior creditors in the Delaware waterfall.
- Corporate Governance Transparency: The lack of publicly disclosed documents related to the Contrarian bid raises concerns about corporate governance and the transparency of the CITGO Sale process.
- Legal Precedents: The legal actions taken by Gold Reserve could set a precedent for how similar corporate sale processes are handled in the future.
- With an expedited hearing scheduled and legal action underway, the next few weeks will be critical in determining the outcome of the CITGO sale process. If the Court rules in favor of Gold Reserve’s emergency request, there may be a reconsideration of the Stalking Horse Bid selection, which could potentially open the door for Dalinar Energy’s proposal to receive further evaluation.
- Gold Reserve remains committed to advocating for what it believes to be a fair and transparent process, ensuring that the interests of all stakeholders—creditors, investors, and other parties—are adequately considered. The company continues to explore all available legal avenues and remains actively engaged in the Delaware sale proceedings.
The CITGO Sale decision to recommend a significantly lower bid over a fully financed and higher-valued proposal has sparked controversy in the ongoing CITGO sale process. As the legal proceedings unfold, all eyes will be on the U.S. District Court for the District of Delaware to determine the next steps. Gold Reserve, through its subsidiary Dalinar Energy, continues to fight for a fair assessment of its bid and remains steadfast in its commitment to securing the best possible outcome for its stakeholders.
