S&P rates new Equistar revolver BB, notes BB-

Standard & Poor's assigned its BB rating to Equistar Chemicals LP's proposed $250 million inventory revolving credit facility and its BB+ rating to a $450 million accounts receivable purchase program that will be available to Equistar Receivables II LLC, a wholly owned subsidiary of Equistar Chemicals LP.

Concurrently, S&P said it assigned its BB- rating to Equistar Chemicals LP's proposed $200 million senior notes due 2011 and affirmed its existing ratings, including the BB- corporate credit rating on the Houston-based company.

The outlook is negative.

Equistar has about $2.3 billion of outstanding debt (prior to adjustments to capitalize operating leases). The proposed financings will be used to repay existing debt obligations and will provide Equistar with additional borrowing capacity to bolster liquidity.

S&P said the ratings reflect Equistar Chemicals LP's position as a major petrochemical producer, as well as the risks associated with an onerous debt burden and operating margins that vary widely over the course of the business cycle. The business risks associated with commodity petrochemical producers include volatile raw material costs linked to oil and natural gas derivatives, capital intensity, and pricing determined by the dynamic balance between supply and demand.

These limitations are offset partially by Equistar's ability to generate strong free cash flows as business conditions improve, a commitment to strengthening credit quality, and by good sources of current liquidity.

The outlook is negative. S&P said that given the depth of the current industry downturn and sub par operating results, the ratings would likely be lowered modestly with a material slippage in quarterly operating results.

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