Fitch Affirms 'BBB-' on HOVENSA's Senior Secured Debt.

Business Editors

CHICAGO--(BUSINESS WIRE)--Nov. 7, 2003

Fitch Ratings has affirmed HOVENSA LLC's senior secured debt rating of 'BBB-'.

The rating applies to approximately US$272.2 million outstanding under the bank term loan due 2008 (term loan), an undrawn US$150 million senior secured bank revolver due 2007, and approximately $126.8 million of senior secured tax-exempt bonds due 2021.

Fitch has also assigned a 'BBB-' rating to HOVENSA's proposed issuance of $74.2 million senior secured tax-exempt bonds (the series 2003 bonds), which are expected to be issued later this year. Similar to the series 2002 bonds issued last year, the anticipated series 2003 bonds will have a 19-year term with no scheduled principal amortization until 2015. Proceeds from the proposed series 2003 bonds combined with some cash on-hand will be used to prepay an aggregate of $81 million of principal payments due through June 2005 on the outstanding term loan, which would reduce the outstanding amount of the term loan to approximately $191 million.

The rating affirmation reflects the achievement of financial completion of the coker upgrade project, the concurrent cancellation of the sponsor completion guarantees, and HOVENSA's ability to prepay debt maturities on the term loan through June 2005 and extend out its principal amortization until after 2014. The combination of debt prepayments and a lengthened debt maturity should enhance the project's liquidity position over the near term, thus facilitating funding of the estimated $446 million of upcoming mandatory capital expenditures associated with the Clean Fuels Program.

Given the inherent volatile nature of the refining sector, Fitch is closely monitoring HOVENSA's cash flow and its sufficiency to fund the remaining mandatory capital expenditures needed to comply with the ultra low sulfur gasoline regulations by 2006. HOVENSA has $436 million of remaining capital expenditures related to the Clean Fuels Program, which will need to be funded between 2004-2006, with the highest funding requirements planned for 2005. Fitch expects these capital expenditures to be funded mainly by HOVENSA's operating cash flow.

Fitch also expects that the sponsors will limit distribution payments necessary to avoid jeopardizing HOVENSA's financial capacity to fund upcoming capital expenditure needs. For those periods, prior to the completion of the Clean Fuels Program, the sponsors have increased their post-completion (of the coker project) financial support from $30 million to $80 million, and HOVENSA has increased the debt service reserve account from six to nine months of principal and interest payments.

HOVENSA's strong financial results year-to-date due largely to favorable refining margins have resulted in EBITDA of $312 million for the first nine months of 2003, and EBITDA of approximately $365 million is projected for the year. For the first nine months of 2003, HOVENSA's crude charges averaged approximately 88% of capacity, which is below what was expected, due to Venezuelan crude disruptions in the first quarter. For the same period, the coker throughput averaged approximately 90%, as expected. HOVENSA, a limited liability company which owns and operates a 495,000 barrels per day crude oil refinery in the U.S. Virgin Islands, is indirectly owned 50% by Amerada Hess Corporation (Hess) and 50% by Petroleos de Venezuela, S.A. (PDVSA), (together, the sponsors).