Moody's lowers Tronox

Moody's Investors Service said it downgraded Tronox Worldwide LLC's corporate family rating to Caa2 from B3, probability-of-default rating to Caa3 from B3, senior secured bank credit facility to B1 from Ba3 (LGD1, 9%) and senior unsecured bonds to Caa3 (LGD4, 56%) from Caa1. The speculative-grade liquidity rating was affirmed at SGL-4.

The ratings remain under review with negative implications.

The agency said the downgrade is due to the company's inability to effect meaningful price increases to offset rapidly increasing input costs that have caused operating margins to drop from 6% in 2006 to just below breakeven in 2007. This margin contraction is reflective of both poor conditions in the housing industry and the unprecedented rise in input costs, Moody's said.

While Moody's views the willingness of the banks to grant a waiver (and subsequent third amendment) and work with management to provide further covenant relief as positive for Tronox's liquidity, the need for such relief, reflecting weakness in the company's ability to generate free cash flow, continues to be a concern to the agency.

The ratings remain on review because Tronox has added specific new management and consultants to aid the company in evaluating all strategic alternatives to improve the business and address ongoing challenges. Moody's said it will attempt to gauge the chances that the company will be successful.

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