CITGO and PDV America Upgraded; Off S&PWatch.

NEW YORK--(BUSINESS WIRE)--S&P CreditWire 10/3/97--Standard & Poor's today raised the senior unsecured debt rating of CITGO Petroleum Corp. to double-'B'-plus from double-'B' and the senior unsecured debt rating of its parent, PDV America, Inc., to double-'B'-minus from single-'B'-plus. In addition, the corporate credit ratings of both companies are raised to double-'B'-plus.

The ratings are removed from CreditWatch, where they were placed June 11, 1997.

The outlook is stable.

The upgrades affect $1 billion of senior debt at PDV America and $250 million of senior debt at CITGO.

These ratings were previously upgraded on June 11, 1997 (corporate credit rating to double-'B' from double-'B'-minus), reflecting the rating upgrades of PDV America's ultimate parent, Petroleos de Venezuela, S.A. (PDVSA) (corporate credit rating to single-'B'-plus from single-'B'), the state-owned energy company of Venezuela, and of the Republic of Venezuela (foreign currency rating to single-'B'-plus from single-'B').

Today's additional ratings upgrades reflect:

--CITGO's enhanced financial flexibility from completion of the Lyondell-CITGO refinery upgrade. With the completion of the refinery upgrade, CITGO's interest in the joint venture increased to 41.5 percent, and CITGO is expected to receive dividends from the venture. In addition, capital expenditures are expected to fall to $1.4 billion during the next five years, down from approximately $2.0 billion during the past five years, which should result in the generation of cash flow that may be applied toward debt reduction.

--Cost reduction and marketing opportunities provided by the acquisition of the refining and marketing assets of Uno-Ven, a joint venture between Unocal Corp. and PDV America.

--Favorable near-term fundamentals for the refining industry, which should result in better gross margins.

PDV America Inc., is a holding company for CITGO Petroleum Corp., a large, U.S.-based refining and marketing company, and PDV Midwest Refining, L.L.C., which owns the former assets of Uno-Ven. PDV America has issued $1.0 billion of senior notes, which are intended to be repaid through mirror notes issued by PDVSA and held by PDV America. While possible financial pressures from the Republic of Venezuela or PDVSA could impact CITGO and PDV America's debt service capacity, Standard & Poor's distinguishes its ratings on PDV America Inc. and CITGO from those of PDVSA because:

--CITGO's cash flow potentially could service both its obligations and those of PDV America.

--Financial covenants provide protection against additional indebtedness and material adverse modifications of current supply contracts.

--PDV America's affiliates have significant strategic importance to PDVSA, as they collectively form the largest U.S. importer of Venezuelan heavy sour crude. These assets also add value to PDVSA's crude stream and provide PDVSA with a hedge against falling realized crude prices. Thus, even if a default by PDVSA on its obligation were to occur, Standard & Poor's believes that PDVSA would have a significant economic incentive to see that PDV America and CITGO honored their commitments.

Standard & Poor's considers PDV America and its holdings (including CITGO and PDV Midwest Refining L.L.C.) as a consolidated entity with essentially equal default risk. In this framework, Standard & Poor's views PDV America's senior notes as structurally subordinated to debt at its operating subsidiaries, and has rated PDV America's senior debt two notches below the consolidated corporate credit rating of double-'B'-plus.

OUTLOOK: STABLE

Future changes in the ratings of CITGO and PDV America will be linked to their stand-alone debt-service capacity and changes in the credit quality of PDVSA. The company's vulnerability to volatile refining margins, changes in regulatory requirements, and dividends from CITGO to PDVSA may temper the pace of debt reduction from prospective free operating cash flow. --CreditWire

CONTACT: Bruce Schwartz, New York, 212/208-8092