A New York federal judge has paused enforcement of nearly $3 billion in defaulted Venezuelan-issued bonds until a winning bidder for the country's most important seizable asset — the parent company of the oil giant Citgo — is chosen in parallel proceedings in Delaware.

Ruling in a brief order on Friday, U.S. District Judge Katherine Polk Failla said she "endorses" an agreement between PDV Holding Inc. and the bondholders to pause enforcement of the bonds until U.S. Circuit Judge Leonard P. Stark chooses a winning bidder for the PDV Holding shares. The latter company, a subsidiary of the Venezuelan state-owned Petróleos de Venezuela SA, or PDVSA, is the indirect parent company of Citgo.

The bondholders hold a 50.1% interest in Citgo Holding, which is wholly owned by PDV Holding and the direct parent company of Citgo. The move comes after Judge Failla ruled in recent months that the bonds were validly issued and that the bondholders are owed some $2.86 billion.

Shares in PDV Holding are being auctioned off to satisfy a $1.2 billion debt owed to defunct Canadian mining company Crystallex International Corp., which was ousted from a lucrative Venezuelan gold mining project by the administration of then-Venezuelan president Hugo Chávez. The auction has attracted other creditors of Venezuela owed billions of dollars more, since Citgo is Venezuela's most significant seizable asset.

In her order on Friday, Judge Failla said the stay of execution would remain in force until a further order from her or, at the latest, seven days after Judge Stark chooses the winning bidder. That decision is expected by the end of the month, she wrote.

Judge Stark, formerly a district court judge for the District of Delaware, was elevated to the Federal Circuit in 2022, but he continues to oversee the Crystallex case and other related matters.

In her September decision affirming the validity of the bonds, Judge Failla rejected PDVSA'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 PDVSA is a part, are not national public interest contracts, she wrote. The judge said views expressed by Venezuela in an amicus brief siding with PDVSA 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 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.

The bondholders are represented in the litigation by a trustee, MUFG Union Bank NA, and collateral agent GLAS Americas LLC.

Counsel for the parties couldn't immediately be reached for comment on Monday.

MUFG Union Bank and Glas Americas are represented by Jeff Recher, Paul Paterson and Roberto Gonzalez of Paul Weiss Rifkind Wharton & Garrison LLP and Chris Clark, 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.