Fitch Affirms IDRs For Lyondell, Equistar & Millennium; Outlook Stable.

CHICAGO -- Fitch Ratings affirms and removes from Rating Watch Evolving the ratings for Lyondell Chemical Company (Lyondell) and Equistar Chemicals L.P. (Equistar) following Lyondell's announcement to acquire the remaining 41.25% interest held by Citgo Petroleum Corporation (CITGO) in Lyondell-Citgo Refinery LP (LCR) for $2.1 billion. The affirmed ratings are as follows:

Lyondell

--Issuer default rating (IDR) 'BB-';

--Senior secured credit facility 'BB+';

--Senior secured notes and debentures 'BB+'.

Equistar

--Issuer default rating (IDR) 'B+';

--Senior secured credit facility 'BB+/RR1';

--Senior unsecured notes 'BB-/RR3'.

At the same time, Fitch downgrades Lyondell's senior subordinated notes rating to 'B' from 'B+' and prospectively assigns a 'BB+' rating to Lyondell's new $800 million senior secured revolving credit facility and $2.65 billion senior secured term loan.

Fitch also affirms the following:

Millennium Chemicals Inc.'s (Millennium):

--Issuer Default Rating (IDR) 'B+';

--Convertible senior unsecured debentures 'BB/RR2'.

Millennium America Inc.:

--Issuer Default Rating (IDR) 'B+';

--Senior secured credit facility and term loan 'BB+/RR1';

--Senior unsecured notes 'BB/RR2'.

The Rating Outlook for Lyondell, Equistar and Millennium is Stable. For Lyondell, approximately $5.4 billion of debt is covered; for Equistar, approximately $2.2 billion of debt is covered; and for Millennium Chemicals, approximately $900 million of debt is covered by these actions.

The rating actions resolve the Rating Watch Evolving status put in place on July 21, 2006, following Lyondell's and its partner, CITGO, announcement to discontinue the auction of LCR.

The rating affirmations for Lyondell's IDR, senior secured credit facility, and senior secured notes and debentures are supported by the increased access to cash flow from LCR as a result of its acquisition of CITGO's remaining 41.25% in the refinery. Given the fact that the refinery will be operating under a new crude supply agreement (CSA) between LCR and PDVSA (which is expected to be based fully on market prices) and Fitch's outlook for continued strength in refining margins, Fitch expects Lyondell's benefit as the sole owner of LCR will offset the initial increase in indebtedness to fund the purchase of CITGO's minority share. Additionally Lyondell is expected to benefit from LCR's unique operating capabilities, its advantaged location and recent capital investments made to the refinery.

Lyondell's consolidated total debt decreased, by $457 million, to $5.84 billion at June 30, 2006 from Dec. 31, 2005. On a proforma basis, Fitch expects total consolidated debt subsequent to the acquisition to be $8.49 billion and Lyondell's parent debt level to reach $5.42 billion. Fitch also expects Lyondell credit metrics will rebound within less than 18 months due to higher EBITDA levels and moderate debt reduction. By 2007 year-end Fitch anticipates Lyondell's consolidated as well as Lyondell parent level credit metrics to improve and surpass 2005 levels. Total balance sheet debt is expected to return to near current levels by the end of 2008.

The affirmation also considers debt reduction at Lyondell parent will be heavily dependent on cash flow received from LCR and Equistar. Even though Fitch perceives integration and operating risks to be low, event risk associated with potential hurricane activity in the US Gulf and future political actions taken by the Venezuelan government could have a material negative affect on the refinery operations. Fitch views political risk as it relates to refinery operations higher than before due to the exit of CITGO as a partner and the potential for Venezuelan heavy sour crude supplies to be diverted away from the U.S. to other geographies. The one notch downgrade of Lyondell's senior subordinated notes to 'B' reflects deep subordination with the increased amount of senior secured debt post acquisition.

Lyondell's exposure to potential weakness in methyl tertiary butyl ether (MTBE) markets and the loss of profitability if alternative products are produced remains a rating concern, as does continued volatility of raw material prices and its impact on demand, dividends and debt levels. Operating results in 2006 and 2007 are likely to be unstable quarter to quarter, but overall tight supply demand fundamentals coupled with low inventories should prove favorable for Lyondell and its businesses in the short term.

The Stable Outlook reflects favorable business conditions for the markets Lyondell participates in and the expectation that Lyondell and its subsidiaries will continue to use excess cash for debt repayment. Fitch also expects that energy and raw material prices will continue to be volatile and remain a headwind for the company. Potential weaknesses related to MTBE as well as Millennium's business are likely to be offset by strong operations from petrochemical and refining operations.

The rating affirmations for Equistar are supported by Fitch's view that the credit profile at Equistar will not materially change as a result of the purchase of CITGO's remaining share of LCR. Lyondell's management has been consistent that the target debt level at Equistar is $1.8 billion (approximately $500 million lower than $2.3 billion total debt level during the last cyclical trough). Fitch expects Lyondell will continue to be committed to previously stated debt reduction targets. Furthermore the rating affirmations incorporate Fitch's outlook for favorable market conditions for the chemical sector in the near-term; however in any one quarter margins may be under pressure from volatile raw materials (crude oil and natural gas). Margins are expected to remain well above a mid-cycle level for 2006 and 2007. Lastly, the ratings also include Equistar's product offerings of ethylene, ethylene derivatives and co-products, its significant earnings leverage, as well as strong cash generation. However, Equistar's ratings are limited by Lyondell's strong access to its cash flow, its focus on North American markets, and a narrower product portfolio compared to Lyondell.

The rating affirmations for Millennium reflect Fitch's view that the credit profile at Millennium will also not materially change as a result of the purchase of CITGO's remaining share of LCR. The ratings consider the cyclical nature of Millenniun's commodity products, strong dividends through its 29.5% interest in Equistar, sizable debt reduction during the last 15-months and Lyondell's ownership of the company. Currently, Millennium cannot declare dividends to Lyondell due to certain restrictions in its existing bond indentures. Concerns include weaker than expected results for Millennium's core businesses and expectations for future cash outflows for distributions to Lyondell. Furthermore, Fitch continues to monitor any new developments regarding Millennium's ongoing lead paint litigation.

Lyondell holds leading global positions in propylene oxide and derivatives, plus TiO2, as well as leading North American positions in ethylene, propylene, polyethylene, aromatics, acetic acid, and vinyl acetate monomer. With the recent acquisition of LCR, Lyondell also expands it refining operations. The company benefits from strong technology positions and barriers to entry in its major product lines. Lyondell owns 100% of Equistar; 70.5% directly and 29.5% indirectly through its wholly owned subsidiary Millennium. Post-acquisition, LCR is a wholly owned subsidiary of Lyondell as well. In 2005, Lyondell and subsidiaries generated $2.22 billion of EBITDA on $18.6 billion in sales.

Fitch's Recovery Ratings (RR), introduced in 2005, are a relative indicator of creditor recovery on a given obligation in the event of a default. A broad overview of Fitch's RR methodology as it relates to specific sectors, including a Case Study webcast, can be found at www.fitchratings.com/recovery.

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