Chronicle Journal: Finance

Fitch Downgrades Valhi's IDR to 'B-' & Kronos International's IDR to 'B'

Fitch Ratings has downgraded Valhi, Inc.'s (NYSE: VHI) Issuer Default Rating (IDR) to 'B-' from 'B+'.

In addition, Fitch has downgraded the rating on Valhi's $85 million senior secured revolving credit facility to 'B-/RR4' from 'B+/RR4'. 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 one-third of the market value of the pledged shares.

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

-- IDR to 'B' from 'BB-';

-- Senior secured notes to 'B/RR4' from 'BB-'.

Kronos International, Inc.'s EUR 80 million senior secured revolving credit facility is rated at 'BB/RR1'.

The Rating Outlooks for both Valhi and Kronos International are Negative.

The ratings actions reflect unfavorable trends in the Titanium Dioxide (TiO2) industry. Industry weakness beginning in the second half of 2007 accelerated in 2008 and resulted in higher debt and lower liquidity at the subsidiary level and higher debt, and a substantial halt to dividends to Kronos Worldwide, Inc. Free cash generation has been negative given higher capital requirements and declining earnings in 2008. Fitch expects persistent high leverage at Kronos International. At the Valhi parent level, the company will be borrowing under its revolver to fund capital at its waste disposal subsidiary.

The Negative Outlooks reflect Fitch's view that trading conditions could deteriorate further and that leverage could increase. In particular, Fitch expects Kronos International's total debt to operating EBITDA will exceed 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 $12.4 million and availability under its $100 million credit facility of $91.6 million after $7 million of drawings at Sept. 30, 2008. The facility was subsequently renewed at $85 million through October 2009. Kronos International had cash on hand equivalent to $25.8 million and $95 million available under its EUR 80 million credit facility at Sept. 30, 2008. Fitch expects liquidity to have been reduced in the fourth quarter given the sharp worldwide economic contraction.

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 (New York)
Sean T. Sexton, +1-312-368-3130 (Chicago)
Media Relations:
Cindy Stoller, +1-212-908-0526 (New York)

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