A subsidiary of Venezuela's state-owned oil company is urging a New York federal judge to pause her ruling enforcing nearly $3 billion in defaulted bonds during an appeal, saying enforcement could permanently alter its business by taking away its "sole meaningful asset": the oil giant Citgo.

PDV Holding argued in a brief to U.S. District Judge Katherine Polk Failla of the Southern District of New York on Friday that it makes sense for her to pause enforcement of payment during the appeal, saying it's already prevailed once in a challenge in the case by convincing New York's highest court that the validity of the bonds should be evaluated under Venezuelan law.

PDV Holding, the subsidiary of the state-owned company Petróleos de Venezuela SA, argued that the bondholders won't be prejudiced by a stay, which will preserve their first-lien security interest in the Citgo shares. Those shares have only increased in value in recent years, according to the brief.

In fact, PDV said, the bondholders are "even more protected than in 2020, when the court last entered a partial stay given that they are currently slated to receive $2.125 billion through a separate settlement they brokered in Crystallex — which by design secures payment to the [bondholders] ... without regard to a merits decision in this case."

Crystallex refers to parallel proceedings in Delaware involving defunct Canadian mining company Crystallex International Corp., where an auction of the Citgo shares is being conducted to satisfy it and other creditors of Venezuela. The auction is a consideration in the present suit because the bonds pledged a 50.1% stake in Citgo Holding Inc., the parent company of Citgo Petroleum Corp, as collateral.

PDV Holding pressed Judge Failla in its brief on Friday not to require it to put up any additional security while the matter remains on hold, saying such a measure is not necessary.

"The Citgo shares secured by the pledge agreement will remain intact throughout the appeal, and defendants will have no less ability to enforce their rights to sell the Citgo shares following an appeal than they do today," the company argued. PDV Holding, in turn, "would be protected against the irreversible harm of posting a gratuitous bond on the collateral should the PDVSA parties succeed on appeal."

The bondholders, represented in the litigation by a trustee, MUFG Union Bank NA, and collateral agent Glas Americas LLC, indicated over the weekend that they intend to object to PDV Holding's motion. They pressed back against PDV Holding's argument in favor of expediting consideration of the motion, saying they needed at least two weeks to file a response, "especially because of the critical importance of the issues raised by the motion."

Judge Failla on Monday gave the bondholders until Nov. 7 to reply, saying she intends to decide the motion before Nov. 17.

Counsel for the parties declined to comment or could not immediately be reached for comment on Monday.

The briefing comes after Judge Failla ruled last month that the bonds had been validly issued under Venezuelan law. On Oct. 17, she ordered Petróleos de Venezuela to pay the amount owed under the bonds, totaling $2.859 billion.

In the September decision, the judge rejected Petróleos de Venezuela's argument that the documents governing the bonds were invalidly issued under Venezuelan law because they are contracts of national public interest requiring assent by the country's National Assembly, concluding that category only includes contracts to which Venezuela itself is a party.

Contracts made by the "decentralized public administration," of which Petróleos de Venezuela is a part, are not national public interest contracts, she wrote. The judge said views expressed by Venezuela in an amicus brief siding with Petróleos de Venezuela were "not conclusive and do not persuade the court to deviate from its analysis of Venezuelan law."

The case is before Judge Failla once again after the Second Circuit overturned her initial 2020 ruling enforcing payment of the bonds. The appellate court's July 2024 ruling was predicated on an opinion from New York's highest court in February 2024 finding that Venezuelan law, not New York law, governs the validity of the bonds.

MUFG Union Bank and Glas Americas are represented by Jeff Recher, Paul Paterson, Roberto Gonzalez and Andrew Rosenberg of Paul Weiss Rifkind Wharton & Garrison LLP, and by Chris Clark, Virginia Tent, Brian Burns and Andrew Rodgers of Clark Smith Villazor LLP.

Petróleos de Venezuela SA and its subsidiary PDVSA Petróleo SA are represented by Kurt W. Hansson, Igor V. Timofeyev, James L. Ferguson and Zachary D. Melvin of Paul Hastings LLP.

PDV Holding Inc. is represented by Michael Gottlieb, Kristin Bender, Nicholas Reddick and Alyxandra Vernon of Willkie Farr & Gallagher LLP.

The case is Petróleos de Venezuela SA et al. v. MUFG Union Bank NA et al., case number 1:19-cv-10023, in the U.S. District Court for the Southern District of New York.