S&P Rates Pemex Finance's $1B Notes Ser 1999-B `BBB'

Business Wire, July 9, 1999

NEW YORK--(BUSINESS WIRE)--Standard & Poor's--

July 9, 1999--Standard & Poor's today assigned its preliminary triple-`B' rating to Pemex Finance Ltd.'s $1 billion note series 1999-B.

In addition, Standard & Poor's affirmed its triple-`B' rating on the uninsured tranches of the company's 1998 and 1999-A series notes.

The preliminary rating is based on information as of July 8, 1999. Subsequent information may result in the assignment of a final rating that differs from the preliminary rating.

This is the third issuance in a $5 billion program that was rated in December 1998. With the proposed transaction, total program issuance to date will be $3.6 billion. It is expected that one of the three tranches will be the beneficiary of a financial guarantee insurance policy issued by MBIA and will therefore be rated triple-`A'.

The issued notes will be unsecured senior obligations of Pemex Finance Ltd., with interest and principal payable quarterly.

The triple-`B' rating on the $5 billion program is based on:

--   The ability of Petroleos Mexicanos (Pemex) to produce, and PMI
     Internacional S.A. de C.V. to export, an amount of Maya crude
     oil, or if unavailable, other crude oil, to generate sufficient
     receivables to pay debt service on up to $5.0 billion of debt
     over the next 30 years.

--   A sufficient level of overcollateralization, which, on average,
     is expected to be 3.8 times (x) debt service, given a stress case
     of a $5 billion note amortizing over 15 years, and 3x debt
     service, given a stress case of a $5 billion note amortizing over
     10 years.

--   The availability of a liquidity facility to cover debt service
     for the next scheduled payment date.

--   The structural enhancements in place to mitigate sovereign risk,
     including the assignment of receivables generated from the sale
     of Maya crude oil to Pemex Finance. In addition, the heavy and
     sour quality of Maya crude oil makes redirection to alternative
     (non-designated) customers difficult, as most of the refining
     capacity for this type of crude is located in the United States,
     Canada, and Aruba. Before closing, the designated customers
     signed agreements acknowledging the assignment and agreeing to
     make any future payments directly to an offshore collection
     account.

--   The expectation that, in the event of heightened sovereign
     financial stress, including the possible but unlikely event of
     default, the government would be less likely to interfere with
     the service of this obligation than with other Pemex obligations
     not benefiting from a supporting structure. This assessment
     reflects Pemex's timely service of its debt secured by future oil
     receivable sales in the early 1980s, even as other Pemex
     obligations were included in the rescheduling of public sector
     debt. Indeed, in a number of past instances of financial stress,
     the Mexican government has utilized oil exports or oil export
     revenues as collateral for sizable emergency external credits. As
     a result, Standard & Poor's believes that, in a possible future
     situation of financial stress, the government would be likely to
     protect the value of this financing option by according it de
     facto seniority. The implicit priority accorded to this debt is
     also supported by the importance of oil industry revenues to the
     government's fiscal performance.

The triple-`B' rating is constrained by:

--   The size of the program. The debt service coverage, given a fully
     utilized program, results in a relatively high percentage of U.S.
     dollars remaining offshore compared with similarly structured
     transactions. This could increase the government's incentive to
     interfere with debt service payments during a period of financial
     stress;

--   The ownership structure of Pemex. Pemex is a decentralized public
     entity wholly owned by Mexico (double-`B' foreign currency
     rating). Pemex has little autonomy, and is treated as an integral
     part of the public sector, from both a financial and operational
     perspective.

--   Pemex's inconsistent track record in the area of exploration and
     reserve replacement. At current reserve and production levels,
     Maya crude oil, the product least likely to be redirected, could
     be depleted in less than 30 years. Pemex is obligated to sell to
     Pemex Finance receivables generated from the sale of other grades
     of crude oil if exports of Maya crude oil fall to less than
     450,000 barrels per day. However, sales of these other grades of
     crude oil may more easily be redirected to customers other than
     designated customers.

--   The limited ability and willingness of designated customers to
     make payments directly into the offshore collection account.
     Although about 10% of Pemex's customers are either rated below
     investment grade or are unrated, the risk of nonpayment by these
     customers is mitigated by Pemex's conservative credit policies
     and the excellent payment history of its designated customer base
     over the past five years.