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Rating Action:

Moody's affirms Tronox's LT ratings drops SGL rating & revises outlook to negative

18 Sep 2007
Moody's affirms Tronox's LT ratings drops SGL rating & revises outlook to negative

Approximately $538 million of Rated Debt Affected

New York, September 18, 2007 -- Moody's Investors Service affirmed Tronox Worldwide LLC's (Tronox) Ba3 corporate family rating and revised the company's outlook to negative as Moody's expects continued weakness in Ti02 pricing, which will diminish free cash flow from operations over the next 12-18 months. Moody's also lowered Tronox's SGL rating to SGL-3 from SGL-2 reflecting adequate liquidity but also acknowledging the prospect of weaker cash flows along with an increased need to utilize bank facilities to fund ongoing cash needs. Tronox's and the industry's pricing power has been adversely affected by a recent downturn in the North American housing industry, which Moody's feels may be prolonged. Major end uses for Tronox's Ti02 include architectural paints and coatings and PVC. Tronox's ratings reflect the company's significant global market share, relatively modest debt burden, positive geographic diversity, and stable customer relationships. On the other hand, the ratings are constrained by weak historical operating performance, the weakness in the housing market, and unusually large legacy environmental liabilities. Many ongoing environmental sites have unknown liabilities and the company continues to take charges related to environmental issues. Moody's believes that these legacy environmental liabilities are unique in size and complexity, and constitute a key negative factor when determining the rating.

Downgrades:

..Issuer: Tronox Worldwide LLC

....Speculative Grade Liquidity Rating, Downgraded to SGL-3 from SGL-2

Outlook Actions:

..Issuer: Tronox Worldwide LLC

....Outlook, Changed To Negative From Stable

The negative outlook reflects the prospect of weakening cash flow from operations, a depressed outlook for the TiO2 industry over the intermediate term, and reduced financial flexibility. Given Tronox's relatively high-cost position and large legacy liabilities, an extended margin squeeze could have a material impact on the company's credit profile. In early 2007, Tronox sought and received an amendment to its credit facility that relaxed some covenant tests. The prospect of weaker cash flows could create a need for further amendments over time. The potential for material asset sales over the next 3-4 quarters may, if the proceeds are used for debt reduction, serve to offset some of the expected margin pressure and help stabilize credit metrics. In order to maintain the rating, the company must reduce Debt/EBITDA (as calculated using Moody's standard adjustments) to less than 3.5x within 12 months.

Tronox Worldwide LLC is the third-largest global producer of TiO2, a white pigment used in a wide range of products for its ability to impart whiteness, brightness and opacity. TiO2 is used in a variety of products including paints and coatings, plastics, paper and consumer products. The company commands a 13% global market share in TiO2, reporting sales of $1.4 billion for the twelve months ended June 30, 2007.

New York
William Reed
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Steven Oman
Senior Vice President
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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