Fitch Revises Rating Watch for Star Gas to Positive

Business Wire, March 31, 2006

NEW YORK -- Fitch Ratings has revised the Rating Watch for Star Gas Partners, L.P.'s (Star Gas) outstanding 'CCC' rated $265 million principal amount of 10.25% senior unsecured notes due 2013, co-issued with its special purpose financing subsidiary Star Gas Finance Company (the notes) to Positive from Evolving. The Star Gas notes had originally been placed on Rating Watch Evolving on Dec. 5, 2005 following the initial announcement of a proposed plan of recapitalization reached with Kestrel Energy Partners, LLC (Kestrel). Star Gas has an Issuer Default Rating (IDR) of 'CCC' and the notes have a Recovery Rating of 'RR4', indicating average recoveries.

Today's rating action primarily reflects Fitch's favorable assessment of the current amended agreement between Star Gas and Kestrel that was announced yesterday. Successful completion of the plan will result in a material reduction in debt and new equity, improving the operating profile of Star Gas and recovery prospects for the remaining unsecured creditors and could result in higher ratings. Star Gas has received the required consents to the amended Kestrel plan from holders of more than two-thirds of the notes. Execution of the plan requires the approval of its unitholders.

Star Gas has received alternative proposals from another investment group and may receive additional proposals in the coming weeks. It should be noted that alternative proposals, if approved by Star Gas and its stakeholders, might not have as favorable an outcome for noteholders as the Kestrel plan but will not likely result in any weakening of the noteholders current position. Future rating actions will depend on the status and execution of the Kestrel or alternative recapitalization plan, operating results at its operating subsidiary Petroleum Heat and Power Co., the adequacy of Star Gas' liquidity, and Fitch's ongoing assessment of recovery prospects for the noteholders.

The amended Kestrael recapitalization plan includes a commitment by Kestrel to purchase $16.875 million of new common units and provide a standby commitment in a $39.375 million common rights offering. Star Gas will use the equity proceeds and additional funds to purchase at least $60 million of the notes at par. In addition, certain noteholders have agreed to convert nearly $27 million of the notes into common units. As a result of the transactions, the amount of outstanding notes will be reduced by between $87 million and $100 million. The agreements relating to the recapitalization will terminate if the transaction does not close prior to April 30, 2006.

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.> Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.