S&PCORRECT: Port Arthur Finance Notes Rated 'BB'.

NEW YORK--(BUSINESS WIRE)--Aug. 2, 1999--

(Editor's Note: In the press release sent July 30, the size of the issues was misstated in the first paragraph. A corrected version follows).

Standard & Poor's assigned its double-'B' rating to Port Arthur Finance Corp.'s (PAFC) $325 million senior secured notes to be allocated at financial close between series A due 2008 and series B due 2009. The outlook is stable but subject to receipt of acceptable project and financing documentation.

PAFC is a funding company created to issue bonds and lend the proceeds to the Port Arthur Coking Corp. (PACC) to finance a portion of the cost to construct a new coking plant at Clark Refining and Marketing's (Clark, double-'B'/Watch Neg/-) Port Arthur, Texas, 250,000 barrel per day refinery complex. The upgrade will produce intermediate and finished petroleum products.

The double-'B' rating reflects the following risks:

-- A margin stabilization agreement (MSA) within a Maya crude supply agreement (CSA) from a subsidiary of Petroleos Mexicanos (Pemex, foreign currency rating double-'B'/stable/-) that may not accurately track actual market prices;

-- Exposure to merchant market refining margins for all non-coke production after the MSA expires eight years from startup;

-- Exposure to Pemex performance risk that could force the project to absorb a 15-20% reduction in Maya crude supply if Pemex curtails oil exports;

-- Refinancing of the series B bullet maturity could be a mild risk should refinery margins tighten to 1996-98 levels;

-- Clark performance, in that the project leases from Clark land and assets, whose availability could be at risk in a Clark insolvency. The project cannot operate without these assets;

-- Clark performance in the timely completion of a separate $96 million upgrade to its refinery and of Air Products and Chemicals Inc.'s (single-'A'/Watch Neg/`A-1') timely completion of a hydrogen supply plant;

-- That some project revenues will come from Clark for certain refining services and product sales;

-- Structural features that could reduce bank funding obligations to the project, including among other things, an adverse change to Clark's or Pemex's financial conditions; and

-- Contribution of $104 million of equity during construction from unrated Blackstone Capital Partners III Merchant Banking Fund L.P. which flows to the project through a multilayer project ownership structure.

The following strengths adequately offset the risks at the double-'B' rating:

-- The MSA will likely cause the project to earn a stable and predictable cash flow sufficient to cover debt service under most low price stress scenarios, including severe backcast cases from the last 10 years.

-- Under most scenarios the project will trap $67.5 million in cash from 2005-2008, which the project can then apply to offset the series B refinancing in 2009;

-- The non-cancelable structure of the project's leases limits risk of access risk to Clark's assets under an insolvency event;

-- Construction by Foster Wheeler Corp. (triple-'B'/Watch Neg/-) pursuant to a $544 million date certain, fixed priced, engineering, procurement and construction contract with 28% liquidated damages mitigates most completion and technology risk;

-- Operations and maintenance that will be performed by Clark which has adequate coker plant experience;

-- Blackstone's $20 million equity contribution at closing combined with its cash call abilities for up to $3.6 billion from its limited partners, many of whom have high credit ratings, limit project equity funding risk; and

-- Base case debt service coverage ratios of 2.0 minimum and 2.4 average. Coverages, however, vary considerably under stress analysis and could fall below 1.0 in some years due to low product prices - in most cases, there is adequate liquidity to cover any shortfall.

PACC will use the proceeds to fund a portion of the $765 million cost to construct a new coker facility at Clark's Port Arthur refinery in Port Arthur, TX. PACC guarantees payment of the bonds from revenues earned through the sale of intermediate and final refinery products produced from inputs of Maya crude pursuant to a Pemex CSA that expires in 2010. The CSA includes take-or-pay provisions and a guaranteed average coker margin of $15 per barrel over an eight-year period from startup. Clark and its affiliates will own, operate and purchase product from the project under long-term intercompany agreements.

OUTLOOK: STABLE

The advanced stage of construction, benefits of the CSA margin stabilization agreement, adequate crude oil supply, and intercompany agreements that reflect market prices allow Standard & Poor's to conclude that the project's debt rating is stable. Non-cancelable leases, non-rejection legal opinions and the refinery's importance allow for potential elevation above Clark's corporate credit rating. The project's exposure to merchant refinery margins constrain the rating. A rating downgrade could result due to material changes in the financial condition of any of the transaction parties, including a deterioration of Clark's rating into the single-'B' category, Standard & Poor's said. -- CreditWire