Fitch Places Lyondell and Equistar Ratings on Rating Watch Evolving

Business Wire, July 21, 2006

CHICAGO -- Fitch Ratings has placed the ratings of Lyondell Chemical Company (Lyondell) and Equistar Chemicals L.P. (Equistar) on Rating Watch Evolving following Lyondell's announcement earlier today that the auction process to sell Lyondell Citgo Refinery LP (LCR) was discontinued. Fitch currently rates Lyondell's and Equistar's debt as follows.

Lyondell

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

--Senior secured credit facility at 'BB ';

--Senior secured notes and debentures at 'BB ';

--Subordinated notes at 'B '.

Equistar

--IDR at 'B ';

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

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

In addition, Fitch affirms the following Millennium Chemicals Inc.'s (Millennium) ratings:

--Convertible senior unsecured debentures at 'BB/RR2';

--IDR at 'B '.

Fitch also affirms Millennium America Inc.'s ratings:

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

--Senior unsecured notes at 'BB/RR2';

--IDR at 'B '.

Millennium's Rating Outlook remains Stable.

For Lyondell, approximately $2.8 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 Watch Evolving status suggests that elements of a downgrade, upgrade, and affirmation are present in Lyondell's current situation. Given the uncertainty of the situation and multiple possible outcomes, a downgrade may potentially be required if Lyondell agrees to purchase the remaining 41.25% interest held by Citgo and funds such a purchase with additional debt. Fitch recognizes the downside scenario would be dependent on the total amount and composition of debt that would be incurred to finance such a purchase as well as evaluating the offsetting benefit from owning 100% of LCR, including full access to cash generation from the refinery operations. However, an upgrade could be warranted if any interested parties, or another buyer(s) emerge to acquire LCR for substantially greater than the $5 billion previously offered to the partners. Fitch expects that Lyondell would use proceeds from any refinery sale to repay debt as the company has publicly stated. Finally, an affirmation may be necessary if the partners continue with the LCR joint venture and no change in ownership occurs.

Fitch expects any potential sale of LCR could also have a positive indirect effect on Equistar, since Lyondell's management has expressed its intent to use any proceeds from the refinery sale to fund debt repayment above Lyondell's initial $3.0 billion debt reduction target. With further deleveraging at the Lyondell parent, Equistar's ratings would indirectly benefit as its ratings are limited by Lyondell's ratings. The parent ratings limit Equistar's ratings due to Lyondell's strong access to its cash flow. Furthermore, Equistar is focused on North American markets and it has a narrower product portfolio compared to Lyondell.

In the alternative situation, a purchase of Citgo's 41.25% share in LCR by Lyondell could potentially have negative effects on Equistar due to the relationship between Lyondell and Equistar ratings. The potential for additional debt at Lyondell could result in a greater demand for cash from Equistar.

The affirmation of Millennium's ratings reflects Fitch's expectations that a potential sale of LCR or purchase of Citgo's 41.25% interest in LCR by Lyondell would not affect Millennium ratings. The ratings also consider the cyclical nature of Millennium's commodity products, strong dividends through its 29.5% interest in Equistar, sizable debt reduction during the last 12-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.

Lyondell holds leading global positions in propylene oxide and derivatives, plus titanium dioxide, as well as leading North American positions in ethylene, propylene, polyethylene, aromatics, acetic acid, and vinyl acetate monomer. 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. It also owns 58.75% of LCR, a highly complex petroleum refinery has a long-term, fixed-margin crude supply agreement with PDVSA. In 2005, Lyondell and subsidiaries generated $2.22 billion of EBITDA on $18.6 billion in sales.

CITGO is one of the largest independent crude oil refiners in the U.S., with three modern, highly complex crude oil refineries and two asphalt refineries. With the expansion of the Lake Charles refinery to 425,000 bpd of capacity, CITGO now owns 970,000 bpd of crude refining capacity, including the company's 41.25% interest in LYONDELL-CITGO Refining L.P. (LCR). LCR owns and operates a 265,000-bpd crude oil refinery in Houston, Texas. CITGO branded fuels are marketed through more than 13,000 independently owned and operated retail sites. CITGO is owned by PDV America, an indirect, wholly owned subsidiary of Petroleos de Venezuela S.A. (PDVSA), the state-owned oil company of Venezuela.