TEXT-S&P removes PDVSA Finance debt from CreditWatch

Forbes.com-Reuters, 04.22.03, 4:04 PM ET (The following statement was released by the rating agency)

NEW YORK, April 22 - Standard & Poor's Rating Services today removed its ratings on PDVSA Finance Ltd.'s US$3.3 billion and Eur200.0 million rated debt from CreditWatch, where they were placed Dec. 10, 2002 (see list).

The rating action reflects the recent improvement in the rating outlook (to stable from negative) for the Bolivarian Republic of Venezuela (CCC+/Stable/C) and Petroleos de Venezuela S.A. (PDVSA; CCC+/Stable/-). The rating action is also based on a number of recent credit developments specific to the PDVSA Finance transaction, including:

-- A significant recovery in daily oil production by PDVSA;

-- Improvements in the invoicing of exported production after a lengthy interruption;

-- A sharp increase in the amount of funds flowing through the PDVSA Finance collection account; and

-- Certification by PDVSA of its compliance with all transaction performance covenants.

Standard & Poor's met with the management of PDVSA twice in recent weeks to discuss the company's progress in recovering from the labor strikes that have negatively affected its ability to produce, export, and bill its customers since late 2002. PDVSA indicated that production has recovered to approximately 2.5 million barrels per day after having fallen sharply in the December 2002 to February 2003 period. The company is steadily working through its invoicing backlog so that it can collect payment for product that was previously shipped, but for which it was unable to bill its customers due to damage inflicted on its billing systems by striking workers. PDVSA was able to resume billing customers for current shipments beginning in March 2003. The company indicated that it has currently eliminated about half of the backlogged invoicing volume related to previous oil shipments.

As a result of the production increases and improved billing, cash flowing through the PDVSA Finance collection account has increased sharply. Prior to the strikes, approximately $700 million to $1.1 billion in monthly payments flowed through the PDVSA Finance collection account, with the value of the shipments fluctuating based on the quantity of oil delivered by PDVSA to the designated customers and the price of the oil at the time of delivery. Reflecting the impact of the strike on production and export volumes, these collection flows dropped to as low as $200 million in January 2003 before recovering slightly in February to $350 million and to a much stronger level of $960 million in March. Matching the declines in production and deliveries, the debt service coverage ratio for the PDVSA Finance transaction dipped to a low of 4.50 for the month of February 2003 before recovering to 5.81 in March. The terms of the PDVSA transaction allow investors to demand an early amortization of the rated notes if the debt service coverage ratio falls below 4.0.

PDVSA Finance made its February 2003 debt service payment on the rated securities out of collection account funds and without recourse to the transaction liquidity facility. Based on the recovery in production and collections, Standard & Poor's anticipates PDVSA Finance will be able to maintain timely payment of debt service due without recourse to this fully funded liquidity facility in the near future. In addition, PDVSA has certified to Standard & Poor's that it is-and remained during the January 2003 through March 2003 period-in compliance with all PDVSA Finance transaction performance covenants. RATINGS REMOVED FROM CREDITWATCH PDVSA Finance Ltd. Class Rating

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A 6.45% notes due 2004 B- B-/Watch Neg B 6.65% notes due 2006 B- B-/Watch Neg C 6.80% notes due 2008 B- B-/Watch Neg D 7.40% notes due 2016 B- B-/Watch Neg E 7.50% notes due 2028 B- B-/Watch Neg F 8.75% notes due 2004 B- B-/Watch Neg G 6.25% notes due 2006 B- B-/Watch Neg H 9.40% notes due 2007 B- B-/Watch Neg I 9.75% notes due 2010 B- B-/Watch Neg J 9.95% notes due 2020 B- B-/Watch Neg K 8.50% notes due 2012 B- B-/Watch Neg