S&P Affirms Phoenix Park Funding's'BBB' Rtg.

NEW YORK--(BUSINESS WIRE)--Standard & Poor's--

Sept. 14, 1999--Standard & Poor's today affirmed its triple-'B' rating on Phoenix Park Funding Ltd.'s $110 million senior bonds due 2013, following regular surveillance and yesterday's upward revision in the rating on the Republic of Trinidad

Phoenix Park Funding is a funding vehicle that loaned the bond proceeds to Phoenix Park Gas Processors Ltd. (Phoenix Park) to finance a portion of a $156 million expansion of its natural gas processing and fractionation plant located in Trinidad & Tobago. Phoenix Park is a joint venture owned 39% by Conoco (single-'A'-minus/Neg/`A-2'), 51% by the Natural Gas Company of Trinidad & Tobago (NGC), and 1% by Pan West Engineers and Constructors.

The rating reflects the following risks:

-- Natural gas liquids (NGL) production is sold through short-term contracts, creating continuous commodity market price risk exposure. Growing competition from planned new projects in Latin American could result in downward price pressure and reduced debt servicing capability;

-- Unrated entities provide all production inputs, including about 97% of natural gas inputs from NGC and about 24% of the project's fractionation flow requirements from the Atlantic LNG Co. of Trinidad & Tobago (Atlantic LNG) plant, a which is just beginning operations; and

-- To fund related and offshore expansion, Phoenix Park may incur up to $20 million in additional debt that will rank pari passu with the bonds, which could lower pro forma debt service coverage ratios (DSCRs).

Mitigating these risks are the following strengths:

-- Low break-even prices for propane, butane, and natural gasoline;

-- The strategic service Phoenix Park provides as Trinidad's main natural gas processing facility-NGC's wet gas streams must be processed and stripped of NGLs prior to delivery to the large industrial users that earn a rising share of the country's foreign currency-export earnings;

-- NGC's nearly exclusive rights to distribute natural gas in Trinidad & Tobago from a reserve basis that should last about 38 years at current production levels;

-- All sales contracts are dollar denominated with payments made directly to the offshore trustee, who pays out all expenses, debt service, and equity distributions;

-- Construction is essentially complete and the plant is operational. Purvin & Gertz is analyzing results of performance tests;

-- Conoco's long-term agreement with Phoenix Park to provide management, operating, technical, marketing, financial, purchasing, and maintenance services that minimizes operational risk;

-- A conservative leverage level of 70% for the project, and 60% for the post expansion company;

-- Good operational and financial performance of the existing facility since 1993;

-- Experienced sponsors with host country partner participation;

-- A collateral package that includes the existing facility and the expansion works; and

-- Base case projections show debt service coverage ratios of 2.13x minimum and 3.79x average during the debt term-downside price cases indicate that revenues from the existing facilities alone can cover debt service.

Factors supporting a rating higher than the sovereign's rating include:

-- A low probability of Trinidad & Tobago imposing restrictions on current or capital account transactions, even during a period of balance of payments stress;

-- Phoenix Park's important role supporting growth of the petrochemical industry, which is key to Trinidad & Tobago's export-oriented economic diversification and growth strategies;

-- The disincentive to and limited benefit of sovereign interference in the flow of export proceeds. All sales are paid in U.S. dollars directly into U.S.-based trustee accounts. Standard & Poor's, however, acknowledges that the government could alter the offtake contracts to redirect sales payments to its own accounts, but already benefits substantially from the project's financial and operational performance.

Phoenix Park achieved substantial completion in April 1999, ahead of schedule and within budget. The project is operational and is successfully ramping up to reach pro forma production flow rates. Current fractionation rates of about 19,000 barrels per day (bpd) are expected to soon achieve the 20,000 bpd goal. The project has achieved in excess of 97% propane recovery. Atlantic LNG is ramping up, and already supplying Phoenix Park with 5,000 bpd of the planned 7,200 bpd of NGLs.

OUTLOOK: STABLE

The stable outlook is based on the several years of demonstrated performance, expansion works based on simple and proven technologies, adequate natural gas reserves, and low break-even NGL prices. Failure of Atlantic LNG to provide the projected deliveries of NGLs, sustained erosion of Phoenix Park's Caribbean market share, and downward movement in the sovereign rating of Trinidad & Tobago could result in rating downgrades. Commodity price risk likely will limit rating upgrade potential in the near term regardless of upward movements in the sovereign rating, Standard & Poor's said. -- CreditWire