February 5, 2015 / 4:18 PM / 3 years ago

UPDATE 1-Citgo sweetens terms on US$2.5bn financing package

(Adds details, loan pricing revision, background)

By Davide Scigliuzzo

NEW YORK, Feb 5 (IFR) - Venezuela's US refining unit Citgo was forced to sweeten the terms of a US$2.5bn financing package aimed at pumping new cash into the coffers of the South American country's state-owned oil company PDVSA.

Concerns over the outlook for the battered US energy sector along with skepticism over the ultimate goal of the transaction are forcing Citgo to offer investors a yield close to 12%, much higher than originally anticipated.

"Initial price indications were too tight for investors," said Jorge Piedrahita, Chief Executive Officer or brokerage Torino Capital. "You have other US assets that are yielding 14%, 15%, or 16% percent in that sector."

By pledging some of its most valuable assets abroad, recession-hit Venezuela is hoping to raise new funds to fend off default worries and a slide in crude oil prices, its main source of foreign exchange.

The company has set official price talk of 11.75% area for a US$1.5bn 5.5-year non-call two bond issue, wide to early indications - or whispers - of high 10% to 11% released last week. The notes are expected to be issued at a 95%-96% discount to par value.

It has also widened pricing on a US$1bn senior secured five-year term loan to a spread of 825bp over Libor, from the originally targeted 800bp over.

On the loan, the company is now offering a steeper new issue discount of 94% to par value, meaning that the all-in yield on offer will likely be over 11% compared to the originally targeted 10%.

The non-call one loan will have a Libor floor of 1% - meaning that the interest paid on the principal would be at least 9.25%.

The financing package is secured by US$750m in midstream assets and a 49% pledge on the equity of Citgo Petroleum Corp, the operating entity.

Order books for the bond sale will close at 12:00 EST on Friday.

Deutsche Bank is sole bookrunner on the financing package, while Brazilian investment bank BTG Pactual is joint lead manager on the bond issue.

Reporting by Davide Scigliuzzo; Additional reporting by Paul Kilby and TRLPC's Jonathan Schwarzberg; Editing by Jack Doran

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