Fitch Ratings has downgraded Valhi, Inc.'s (Valhi; NYSE: VHI) Issuer Default Rating (IDR) to 'CCC' from 'B-'.
In addition, Fitch has downgraded the rating on Valhi's $85 million senior secured revolving credit facility to 'CCC/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. Borrowings are limited to a third of the market value of the pledged shares.
Fitch has also downgraded Kronos International, Inc.'s (Kronos International) ratings as follows:
--IDR to 'CCC' from 'B';
--Senior secured revolving credit facility to 'B+/RR1' from 'BB/RR1';
--Senior secured notes to 'CCC/RR4' from 'B/RR4'.
The Rating Outlooks for both Valhi and Kronos International are Negative.
The rating 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 halt to KRO dividends. 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 and dividends.
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 tight liquidity at 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).
Kronos International is Europe's second largest producer of TiO2 pigments. The company is a wholly owned subsidiary of KRO, 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.
Valhi is a holding company with direct and indirect ownership stakes in NL, KRO, CIX (manufacturer of component products) and Waste Control Specialists (provider of hazardous waste disposal services).
Monica M. Bonar, 212-908-0579, New York
Sean T. Sexton, 312-368-3130, Chicago
Cindy Stoller, 212-908-0526, New York