Fitch downgrades Valhi, Kronos

Fitch Ratings said it downgraded Valhi, Inc.'s issuer default rating to B- from B+ and its $85 million senior secured revolving credit facility to B-/RR4 from B+/RR4.

The agency also downgraded Kronos International, Inc.'s issuer default rating to B from BB- and senior secured notes to B/RR4 from BB-. The BB/RR1 rating on its €80 million senior secured revolving credit facility is unchanged.

The outlooks for both Valhi and Kronos are negative.

Fitch said the rating actions reflect unfavorable trends in the titanium dioxide industry. Industry weakness beginning in the second half of 2007 accelerated in 2008 and resulted in higher debt and lower liquidity. Free cash generation has been negative given higher capital requirements and declining earnings in 2008, and Fitch expects persistent high leverage at Kronos International and that Valhi 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, the agency said it expects Kronos International's total debt-to-operating EBITDA ratio to exceed 7 times over the next 12 to 18 months.

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