Fitch Places FertiNitro Finance on Rating Watch Negative; Affirms 'B-' Rating.

NEW YORK -- Fitch Ratings has placed the 'B-' rating of FertiNitro Finance Inc.'s (FertiNitro) US$250 million 8.29% secured bonds due 2020 on Rating Watch Negative status.

The Negative Watch status portends a heightened probability of a rating downgrade in the short term and is fundamentally associated with the possibility that a new petrochemicals law drafted by the Venezuelan government will be implemented within 2005. Essentially, the proposed law would force FertiNitro to redirect portions of its fertilizer output from the world export markets to the domestic Venezuelan market with sales subject to regulated pricing dictated by the government. According to the offtake agreement between Petroquimica de Venezuela, S.A. (Pequiven) and FertiNitro, Pequiven is obligated to re-sell most of its 50% share of the plant's production outside Venezuela at market prices. Fitch believes that the redirection of output called for under the proposed law would contravene the agreement and, if enacted, would most likely subject the project to lower, state-dictated pricing. Fitch estimates that, in consequence, cash collections would decrease significantly during the remainder of 2005 and to a greater degree in 2006. The drop in cash revenue in 2006 could result in an after-tax operating deficit and significantly diminish cash flow available for scheduled debt service payments.

The proposed change in law arrives at a crucial time for FertiNitro. In 2004, the plant achieved notable performance milestones, as it recovered from the technical defects and other difficulties experienced over the last several years. As a result, FertiNitro's debt service margins reached 1.46 times (x). In 2005, due to the expiration of tax credits and a return to profitability, cash tax payments are forecast to increase to $21 million. However, in the absence of a change in law, the ample cash balances accumulated in 2004 should raise debt service margins in 2005 to about 1.70x, including the full payment in April of the previously deferred bank loan principal, as well as scheduled debt service.

The project's substantially stronger cash position is directly associated with both higher prices for ammonia and urea and improved utilization rates. As of June, the average price of urea, which generates 80% of the project's cash collections, was 24% higher than the 2004 average and 47% higher than the 2003 average. Likewise, the plant's utilization rates have slowly but steadily improved to levels more consistent with its nameplate capacity even as essential repairs have required temporary shut downs. So far in 2005, the urea trains have operated at 85% of capacity (from 77% in 2004).

FertiNitro ranks as one of the world's largest nitrogen-based fertilizer plants. It is owned 35% by a Koch Industries, Inc. subsidiary, 35% by Pequiven, a wholly owned subsidiary of Petroleos de Venezuela S.A., 20% by a Snamprogetti S.p.A. subsidiary, and 10% by a Cerveceria Polar, C.A. subsidiary.

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