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Holders of Venezuelan bonds ask New York Court to protect their rights

Holders of an important bond defaulted on by Venezuela's PDVSA state oil company asked a New York Judge to ensure that they can claim compensation in an expected auction of shares of the parent of Venezuelan-owned U.S. refining company Citgo Petroleum.

Holders' claim in New York against Venezuela is still not resolved. However, if they obtain an injunction, they can block the transfer of Citgo Holding's parent company PDV Holding's shares to the winner of the auction.

Last week, a Delaware court officer who was overseeing the bidding process recommended that a $7.4 billion bid submitted by group led by unit of Gold Reserve for PDV Holding be declared the winner.

The auction, which is being conducted by a court, aims to repay Venezuela's creditors for the debt defaults and expropriations that occurred in South America. The Gold Reserve Group's bid is not a payment agreement for bondholders, unlike some other competing offers.

Holders are preparing to file an injunction in Delaware if Gold Reserve Group's offer under the proposed terms is approved.

Christopher Clark, the lawyer for the holders, said to Judge Katherine Polk Failla of the Southern District of New York that "we don't wish to interfere with sale" in a court proceeding. "We are only trying to protect our rights." Delaware is not a proper forum to do that.

Leonard Stark, a federal judge, must decide in the coming weeks whether or not to approve this recommended bid. Stark anticipated that bondholders' objection to Gold Reserve's proposed transaction to purchase Citgo's parent company could lead to an increase in litigation. The 8-year-old case saw a first failed bidding round.

Late in June, the lawyers for the holders informed Polk Failla that they would be seeking relief, such as an injunction to maintain their status quo, while the New York Court decides their case. The purpose of the hearing on Thursday was for lawyers to explain their planned injunction. Reporting by Marianna Pararaga Editing and proofreading by Marguerita Chy

(source: Reuters)