Fitch Ratings has affirmed the current ratings of CITGO Petroleum Corporation (CITGO) but revised the company's Outlook to Negative from Stable.

Fitch has affirmed the following ratings for CITGO:

--Issuer Default Rating (IDR) at 'BB-';

--Senior Secured Credit Facility at 'BBB-';

--Secured Term Loan at 'BBB-';

--Fixed-Rate Industrial Revenue Bonds (IRBs) at 'BBB-'.

The Rating Outlook is Negative.

CITGO's ratings are supported by the size and complexity of CITGO's three refineries, which total 749,000 bpd of crude distillation capacity and can process a high percentage of lower-cost heavy, sour crude; the strength of the collateral underlying CITGO's secured facilities, which includes its two Gulf Coast refineries plus related working capital accounts; and existing covenant protections for secured lenders, which include limits on distributions to the parent funded from asset sales, a debt-to-capitalization covenant, and an interest coverage covenant.

Downsides affecting the rating are significant and include:

--Ongoing deferral of capex linked to ultra low sulfur diesel projects at the Corpus Christi, TX and Lemont, IL refineries (these refineries are now expected to be out of compliance with on-road Ultra Low Sulfur Diesel requirements beyond the June 1, 2010 deadline);

--A high debt-to capitalization ratio (54.3% on March 31, 2009 versus a bank covenant limit of 55%);

--Low liquidity (approximately $352 million in liquidity available on March 31, 2009);

--Growing refinancing risk in the medium term;

--The negative impacts of the global downturn on refined product demand and crude oil differentials.

Linkage to parent PDV America (a wholly owned subsidiary of Petroleos de Venezuela SA [PDVSA; IDR 'B+'; Outlook Negative by Fitch]), which is controlled by the Bolivarian Republic of Venezuela, also continues to constrain CITGO's current rating. This strong linkage manifests itself through the dividend policy to PDV America; CITGO's contracts to take Venezuelan crude at its refineries; and frequent management appointments at CITGO. The recent use of CITGO's balance sheet to fund a $1 billion parental requirement also highlights the risk of this linkage.

For the LTM period ending March 31, 2009, CITGO generated EBITDA of $1.27 billion and free cash flow of negative $1.15 billion, comprised of cash from operations of $358.6 million, capex of $628 million, and dividends to the parent of $880 million. Total debt with equity credit stood at $2.25 billion, making for debt/EBITDA leverage of 1.80 times (x) and adjusted debt/EBITDAR leverage of 2.80x. As previously stated, the company's debt-to-capitalization ratio remains very close to covenant limits of 55%. Fitch anticipates that the company will remain free cash flow negative at least through 2010 due to weaker refining fundamentals, ongoing pressure to make distributions to the parent, and high pending capex requirements.

Current liquidity at CITGO is low. On March 31, 2009, cash and equivalents were just $7.7 million, revolver availability was $110 million, and A/R Securitization facility availability was approximately $234 million for total liquidity of $352 million. Near term maturities for CITGO are light at just $9 million, however, they ramp up quickly thereafter with $420 million due in 2010, $206 million due 2011, and $913 million due 2012. CITGO's pension was underfunded by $332.9 million at year-end 2008, approximately double the level of underfunding seen in 2007. Management expects to contribute $4 million to qualified pension plans and $15 million to fund other postretirement benefits in 2009. CITGO's asset retirement obligation (ARO) was $23 million, approximately unchanged from levels seen in 2007.

CITGO is a crude oil refiner in the U.S. with three modern, highly complex crude oil refineries. Following the sale of its stake in the CITGO-Lyondell joint-venture refinery in Houston, CITGO owns approximately 749,000 barrels per day of crude refining capacity. CITGO branded fuels are marketed through approximately 7,000 independently owned outlets. CITGO is owned by PDV America, an indirect, wholly owned subsidiary of PDVSA.

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.

SOURCE: Fitch Ratings

Fitch Ratings 
Mark C. Sadeghian, CFA, +1-312-368-2090 (Chicago) 
Sean T. Sexton, CFA, +1-312-368-3130 (Chicago) 
Media Relations: 
Cindy Stoller, +1-212-908-0526 (New York) 
cindy.stoller@fitchratings.com