Fitch: Lyondell, Equistar on watch

Fitch Ratings said it has placed both Lyondell Chemical Co.'s and Equistar's credit ratings on Rating Watch negative following Lyondell's announcement it has agreed to acquire Millennium Chemicals.

Fitch currently rates Lyondell's senior secured credit facility at B+; senior secured notes at B+ and senior subordinated notes at B-. Fitch rates Equistar's secured credit facility at B+ and the senior unsecured notes at B-. Fitch does not rate Millennium's public debt.

The Rating Watch negative reflects the uncertainty in the company's ability to continue to maintain adequate liquidity during the prolonged downturn in the industry cycle while managing the additional cash outflows required as part of the acquisition. Additional cash requirements include the increase in dividends to Millennium shareholders following the transaction of approximately $50 to $60 million annually, a potential put option of Millennium's outstanding 9.25% senior notes due 2008 as well as the transaction costs associated with the acquisition, the agency noted.

Cash outflows related to the potential put option of Millennium's outstanding 9.25% senior notes due 2008 would occur at the Millennium level. The rating watch also reflects the deteriorating credit quality of Millennium in recent years.

Offsetting Fitch's concerns with the proposed transaction is the full access Lyondell will have to the future cash flows at Equistar. In addition, Lyondell would diversify its product offerings with the addition of Millennium's TiO2 business.

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