Chronicle Journal: Finance

Fitch Downgrades Valhi's IDR to 'B+'; Kronos International's IDR to 'BB-'

Fitch Ratings has downgraded Valhi, Inc.'s (NYSE: VHI) ratings as follows:

--Issuer Default Rating (IDR) to 'B+' from 'BB-'.

--$100 million senior secured revolving credit facility to 'B+/RR4' from 'BB-'.

The facility is secured by a pledge of 20 million shares of Kronos Worldwide, Inc. (NYSE: KRO) common stock owned by Valhi and borrowings are limited to 1/3rd of the market value of the pledged shares.

In addition, Fitch has downgraded Kronos International, Inc.'s ratings as follows:

--Issuer Default Rating (IDR) to 'BB-' from 'BB';

--Senior secured revolving credit facility to 'BB' from 'BB+';

--Senior secured notes to 'BB-' from 'BB'.

The Rating Outlook for both Valhi and Kronos International is Stable.

The rating actions reflect unfavorable trends related to Valhi's titanium dioxide (TiO2) business, with declining operating earnings in 2007 and expected for 2008. Free cash generation should be negative given higher capital requirements and declining earnings. The Stable Outlook reflects Fitch's view that trading conditions will not deteriorate further and that leverage should remain in a range. In particular, Fitch expects Kronos International's total debt to operating EBITDA to remain between 5.4 and 5.7 times (x) over the next 12 to 18 months.

The ratings reflect adequate liquidity at both Valhi and Kronos International, KRO's strong market position in the TiO2 industry (fifth largest globally) and Valhi's reliance on dividends from KRO and NL Industries Inc. (NYSE: NL). NL, itself a holding company, relies on dividends from KRO and CompX International, Inc. (NYSE: CIX).

Valhi had cash on hand of $18.4 million and availability under its credit facility of $98.6 million at Dec. 31, 2007. Kronos International had cash on hand equivalent to $67 million and its EUR80 million credit facility was fully available. Both facilities mature later this year and are expected to be renewed.

Kronos International, Inc. is Europe's second largest producer of TiO2 pigments. The company is a wholly owned subsidiary of Kronos Worldwide, Inc., a holding company which has additional ownership interests in certain North American TiO2 producers. TiO2 pigments are used in paints, paper, plastics, fibers and ceramics. Kronos International generated approximately $946 million of sales and operating EBITDA of approximately $114 million for 2007.

Valhi is a holding company with direct and indirect ownership stakes in NL Industries, Inc., Kronos Worldwide, Inc., CompX International, Inc. (manufacturer of component products) and Waste Control Specialists (provider of hazardous waste disposal services). Consolidated revenues and operating EBITDA for 2007 were $1.5 billion and $145 million, respectively.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 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.


Fitch Ratings
Monica M. Bonar, +1-212-908-0579 (Chicago)
Sean T. Sexton, +1-312-368-3130 (Chicago)
Brian Bertsch, +1-212-908-0549
(Media Relations, New York)

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