Creditors scrutinize Elliott affiliate's bid for Citgo parent in court hearing

By Marianna Parraga

HOUSTON, Sept 16 (Reuters) - Creditors lining up in a U.S. court to cash proceeds from the auction of Citgo Petroleum's parent began examination proceedings in a hearing of experts, advisers and an executive from Elliott Investment Management, whose affiliate Amber Energy has emerged as the bidding round's frontrunner.

Amber's $5.9 billion bid for Citgo parent PDV Holding was recommended last month by a court officer as winner of the auction, aimed to compensate 15 creditors for debt defaults and expropriations in Venezuela.

The bid's defining feature is a $2.1 billion payment agreement with holders of a defaulted bond issued by Venezuelan state company PDVSA that was collateralized with Citgo equity.

The choice triggered objections from rival bidder Gold Reserve GRZ.V, some junior creditors and Venezuela, which argue that the bondholders need to first win a separate New York case over the validity of the notes before claiming any compensation.

As part of an eight-year case, the Delaware court has been trying since last year to complete the auction of shares of PDV Holding to satisfy up to $19 billion in claims from debt defaults and expropriations against its ultimate owner, Venezuela.

Delaware Judge Leonard Stark on Monday said he could decide on the auction's winner after the hearing, set to go through Thursday, or next month if the court sets a new date for more arguments to be presented.

A previous bid from Amber last year failed to please the creditors, leading the court to change the structure of the auction and organize two new bidding rounds this year. The resolution of some parallel legal cases in pursuit of the same assets encouraged improved offers, unleashing a bidding war in the auction's final stage.

"We probably learned our lesson with respect to the original Amber bid," Elliott's counsel Michael Turkel told the court on Monday. "We didn't understand the importance and necessity of engaging with the writ holders and understanding effectively how our bid would not just be a purchase of the asset for us, but be a problem-solving mechanism for them."

Lawyers asked if Amber's bid, and its linked pact with the bondholders, would stand if they lose the separate New York case.

William Hiltz, managing director at Evercore EVR.N, which is advising the court, said on Tuesday that if those bondholders win their case, Amber's bid would be set to move forward. If they lose, the court could still proceed with Amber's bid or choose to begin a quick re-bidding process, he added.

Amber declined to comment.

Parties also discussed challenges related to obtaining antitrust clearance and asked about Elliott's role at rival energy companies, including at Phillips 66 PSX.N. An alleged conflict of interest was flagged this year following Elliott's acquisition of a stake in the U.S. refiner.