Fitch Ratings has affirmed the Issuer-Default Ratings (IDR) for Kronos
Worldwide, Inc. (NYSE: KRO) and its wholly owned subsidiary, Kronos
International, Inc., at 'BB-'. A complete list of rating actions follows
at the end of this release.
The Ratings Outlook has been revised to Stable from Negative. The
company has a solid liquidity position, the TiO2 market seems to have
stabilized, and Kronos should be able to generate neutral free cash flow.
KEY RATINGS DRIVERS
Fitch's ratings reflect the company's solid market position (Top 5
globally) in the titanium dioxide (TiO2) industry, solid liquidity and
modest debt levels combined with earnings volatility in the TiO2
TiO2 is used in pigments to provide whiteness, brightness, opacity and
durability. The industry is fairly concentrated with about 60% of the
global market accounted for by the top five manufacturers. The titanium
feedstock industry is also highly concentrated with the top three
producers accounting for about 63% of supply.
The TiO2 market is subject to volatile stocking and de-stocking trends
as customers substitute lower quality pigments when prices rise beyond
their ability to pass through. TiO2 producers tend to produce at
capacity while prices are rising and then need to curtail production and
drop prices to move inventory when pricing overshoots. The industry has
been in a destocking phase which seems to have ended. In particular,
Kronos Worldwide operated at 90% capacity utilization in the first
quarter of 2014 versus 86% in 2013, 85% in 2012 and 100% in 2011. The
resolution of the lock-out in Canada (from June 2013 and February 2014)
should allow operations to produce at higher capacity for the rest of in
At March 31, 2014, cash on hand was $179 million of which, less than $55
million was held by non-U.S. subsidiaries. The $125 million, five year,
asset based revolver at Kronos Worldwide is secured by receivables and
inventory in North America. The facility has a 1:1 minimum fixed charge
covenant at such times as availability is less than 10% but no other
maintenance financial covenants. At March 31, 2014, the facility was
undrawn and $107 million was available. The facility matures in June
The Euro120 million revolver is secured by the accounts receivable and
inventory of the borrowers (European operating subsidiaries of Kronos
International). The facility currently expires in September 2017 and has
a net secured debt to EBITDA maximum covenant of 0.7x and Net debt to
Equity minimum covenant of 0.50 to 1 which is calculated at the
operating subsidiary level. The company received a waiver in December
2013 for the period through June 2014 to allow borrowing based on
minimum EBITDA levels. At March 31, 2014, the facility was undrawn and
Euro90 million of the facility was available. The company expects to be
in compliance with the financial covenants at June 30, 2014. The
facility tends to be drawn seasonally with borrowings repaid in the
The company guides to 2014 capital expenditures of $68 million and Fitch
expects dividends to be $69.5 million in 2014. Free cash flow for the
latest 12 months ended (LTM) March 31, 2014, was $33 million. Scheduled
debt maturities through 2019 are largely comprised of the $3.5 million
in aggregate per year due under the term loan.
Fitch expects operating EBITDA to be at least $170 million in 2014
compared to LTM March 31, 2014 operating EBITDA of $49 million. Fitch
also expects free cash flow after capital expenditure but before
dividends to be positive. Fitch expects Kronos Worldwide to maintain
dividends at the $69.5 million level while the company has excess cash
on the balance sheet and availability under its covenants.
Fitch expects Kronos Worldwide Total Debt/EBITDA to drop below 2.5x by
the end of 2014.The Stable Outlook reflects Fitch's expectation that
EBITDA returns to at least $150 million per annum with neutral free cash
flow after capital expenditures and dividends on average.
Negative: Future developments that may, individually or collectively,
lead to negative rating action include:
--Expectation of sustained total debt to EBITDA above 3x.
--Liquidity less than $200 million and/or cash less than $50 million.
--Negative free cash flow after capital expenditures and dividends on
Positive: Not anticipated over the next 12 months.
Fitch has affirms the following ratings:
Kronos Worldwide, Inc.
--IDR at 'BB-';
--ABL Revolver at 'BB+'; and
--Senior Secured Term Loan at 'BB-'.
Kronos International, Inc.:
--IDR at 'BB-'
--Senior secured revolving credit facility at 'BB+'
The Rating Outlook is Stable.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 5, 2013).
Applicable Criteria and Related Research:
Corporate Rating Methodology: Including Short-Term Ratings and Parent
and Subsidiary Linkage
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