Fitch Downgrades PDVSA's IDRs to 'CCC'

Fitch Ratings has downgraded Petroleos de Venezuela, S.A.'s (PDVSA) foreign and local currency issuer default ratings (IDRs) to 'CCC' from 'B'. Fitch has also downgraded approximately USD26.4 billion of senior unsecured debt outstanding to 'CCC/RR4' from 'B/RR4'. Concurrently, Fitch has downgraded PDVSA's national long-term rating to 'AA(ven)' from 'AAA(ven)'.

The rating downgrade follows the downgrade of the sovereign ratings of Venezuela to 'CCC' from 'B'. The downgrade of the sovereign ratings reflects the sharp decline of international oil prices, which increase balance of payments pressures in the context of reduced external financing flexibility and rising macroeconomic instability.

KEY RATING DRIVERS

PDVSA's credit quality reflects the company's linkage to the government of Venezuela as a state-owned entity, combined with increased government control over business strategies and internal resources. This underscores the close link between the company's credit profile and that of the sovereign.

PDVSA's cash flow generation is significantly affected by the large amount of funds transferred to the central government each year. During 2013, total transfers to central government and external parties amounted to more than USD60 billion, or approximately 50% of total reported revenues in the form of royalties, social development expenditures, oil bartering agreements, taxes and dividends.

The high level of transfers to central government renders PDVSA's FFO negative. The company has historically received government treasury notes in exchange for these transfer payments.

RATING SENSITIVITIES

Catalysts for a downgrade include a downgrade to Venezuela's ratings, a substantial increase in leverage to finance capital expenditures or government spending and a sharp and extended commodity price downturn. Catalysts for an upgrade include an upgrade to Venezuela's sovereign rating and/or real independence from the government.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

-- 'Corporate Rating Methodology' (Aug. 08, 2012).

Applicable Criteria and Related Research:

Corporate Rating Methodology - Effective 12 August 2011 to 8 August 2012
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647229

Additional Disclosure

Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=958795

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