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Rating Action:

Moody's revises Fertinitro's outlook to negative

24 Mar 2009

$250 million senior secured bonds rated B3

New York, March 24, 2009 -- Moody's Investors Service has revised the outlook on Fertinitro Finance Inc.'s $250 million of senior secured bonds to negative. The bonds are rated B3. The negative outlook considers the deteriorating outlook for the project's financial performance resulting from a sharp drop in ammonia and urea prices. Based on current price forecasts, the project expects to draw its debt service reserve account to less than half the minimum required balance of six months' debt service in conjunction with its October debt service payment.

The project is currently projected to have a $5.4 million shortfall of cash flow available for debt service in twelve months through October 2009. This would result in a debt service coverage ratio of 0.9x, down approximately 50% from 1.8x in calendar year 2008. Because of the cash flow shortfall together with a projected increase in the project's operating reserve, the balance in the debt service reserve is expected to fall to just $16.8 million, less than half of the required minimum balance of six months debt service or approximately $40 million.

The projected decline in coverage is a result of a sharp drop in forecast prices for ammonia and urea, with the average annual price per metric ton of ammonia expected to fall to $195 from $506 in 2008 and urea expected to fall to $248 from $416. While both ammonia and urea prices spiked in 2008, the forecast prices for 2009 are well below 2007 levels of $290 and $279 respectively.

The projected decline in coverage also reflects an increase in budgeted capital expenditures to $25 million from $13 million in 2008. This increased capex spending is intended to result in an improvement in the project's operating performance, which has been problematic the past two years. The project has had a high degree of outages during this period due to both intrinsic operating difficulties and extrinsic events (primarily power outages), with average capacity factors of 82 and 76% respectively, down from 88% in 2006. The 2009 budget assumes a capacity factor of 89%. If the project is unable to achieve this degree of improvement, actual financial performance is likely to fall short of forecast, all else being equal.

Moody's also notes that $24 million in payments from International Petrochemical Sales Ltd (IPSL), the marketing arm of Pequiven and one of the project's two offtakers, were in arrears as of January 19 and another $35 million in payments were made in Bolivars rather than the required dollars. However, the project reached an arrangement with Pequiven and PDVSA Gas to net $26.5 million in payments owed by the project to PDVSA gas against the amounts due the project. The remaining balance was paid by IPSL and IPSL is reportedly current on amounts due since January 25.

The rating could face downward pressure if the project is forced to rely on its debt service reserve fund as currently anticipated. However, the outlook could be revised to stable if pricing and financial performance significantly exceed current expectations - Moody's notes that notwithstanding significant operating difficulties, the project actually outperformed budget in 2007 and 2008 by a substantial margin, with debt service coverages at least 50 basis points better than forecast in both years, due to stronger than expected pricing. That said, the rating is unlikely to be upgraded in the near to medium term given the significant volatility of the commodity markets in which the project participates along with the project's persistent operating difficulties and risk of increased political interference.

The last rating action with respect to Fertinitro was on April 16, 2007 when Moody's confirmed the B3 rating and stable outlook

Fertinitro's rating was assigned by evaluating factors we believe are relevant to the credit profile of the issuer, such as i) the business risk and competitive position of the company versus others within its industry, ii) the capital structure and financial risk of the company, iii) the projected performance of the company over the near to intermediate term, and iv) management's track record and tolerance for risk. These attributes were compared against other issuers both within and outside of Fertinitro's core industry and Fertinitro's rating is believed to be comparable to those of other issuers of similar credit risk.

Fertinitro Finance Inc. is a financing vehicle incorporated in the Cayman Islands, whose debt is secured by Fertilizantes Nitrogenados de Venezuela, Fertinitro, C.E.C. ("Fertinitro"), a $1.1 billion integrated fertilizer project located in Venezuela. The project, which was completed in 2001, consists of two ammonia and two granular urea plants at the Jose Petrochemical Complex in Jose, Venezuela. The project monetizes surplus associated gas from oil production in Venezuela, to be supplied by PDVSA Gas. Production capacity is approximately 1.4 million metric tons of urea and 1.3 million tons of ammonia annually, though approximately 67% of the plant's ammonia output is used to produce urea. Ammonia and urea are primarily used as agricultural fertilizers.

New York
Bart Oosterveld
Senior Vice President
Global Infrastructure Finance
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Aaron Freedman
Vice President - Senior Analyst
Global Infrastructure Finance
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's revises Fertinitro's outlook to negative
No Related Data.
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