Credit woes put Tronox on watch for rating cut

02 July 2008 20:18  [Source: ICIS news]

HOUSTON (ICIS news)--Tronox is facing a possible downgrade in its credit rating due to weakness in cash flow generation after negotiating with creditors for relief on some of its debt, Moody’s Investors Services said on Wednesday.

Tronox, a producer of titanium dioxide (TiO2), successfully negotiated with banks in February to relax covenants on its notes, but Moody’s said the company might need more such relief in 2009.

“Tronox's and the industry's pricing power has been adversely affected by a downturn in the North American housing industry, which Moody's feels may be prolonged combined with a substantial increase in ore and energy costs,” the rating agency said.

Major TiO2 producers such as Tronox have declared surcharges and price increases in recent weeks amid weak demand, explaining to buyers that the efforts are necessary to offset escalating costs.

The company has sought to raise prices a number of times since 2007, and in recent weeks said that it was still pursuing those initiatives.

Moody’s said the review of Tronox’s credit situation would likely be completed by the end of August, taking into account the implementation of the price initiatives, potential further weakness in the TiO2 business, and the pace of the US economic slowdown in 2008-2009.

Moody's had already on 4 June lowered the Tronox corporate family rating and assigned a negative outlook on the expectation of continued weakness in TiO2 pricing and feeble cash flow generation.

Tronox is the third largest global producer of TiO2, a white pigment used in a variety of products such as paints and coatings, plastics, paper and consumer goods.

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Author: John Waggoner
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