Fitch Ratings Affirms Terra's IDR at 'B+'; Outlook Stable.

CHICAGO -- Fitch has affirmed the following credit ratings of Terra Industries Inc. (Terra) with a Stable Rating Outlook.

--Issuer Default Rating (IDR) 'B+';

--Senior secured credit facilities 'BB+/RR1';

--12.875% senior secured notes 'BB+/RR1';

--11.5% second priority senior secured notes 'BB/RR2';

--Convertible preferred shares 'B-/RR6'.

Fitch has also assigned the following new IDRs:

Terra Capital, Inc.

--Issuer Default Rating (IDR) 'B+'.

Terra Nitrogen, L.P.

--Issuer Default Rating (IDR) 'B+'.

Terra's strong market positions in U.S. and U.K. nitrogen fertilizer markets; manageable debt level; earnings and cash flow volatility; narrow product portfolio; and exposure to volatile natural gas prices support the ratings. While the diversity of Terra's product portfolio is limited to nitrogen products and methanol, strong market presence and manageable debt level are positive credit factors. Exposure to unpredictable raw material natural gas prices and cyclical end-markets can cause Terra's earnings and cash flow to swing rapidly between extremes.

Terra is currently experiencing pressure on its earnings from lower volumes and high costs. Terra's first-half 2006 (1H'06) nitrogen products volume declined approximately 17% from last year's first half due to weaker demand in the U.S. market. The U.S. spring season saw farmers planting 3% less corn acreage in 2006, primarily due to higher planting costs. Additionally, fertilizer applications rates may have been down this year as farmers tried to keep costs down. Meanwhile, Terra's own high costs continue to persist. Raw material natural gas remains elevated.

The volatility of earnings and cash flow heightens the importance of manageable debt level. Terra has reduced its debt (including equity credit for preferred shares) to $354.5 million as of June 30, 2006 from a high of $462 million in 2004, the year of the Mississippi Chemical Corporation (MCC) acquisition. With weaker LTM EBITDA of $117.9 million, total debt-to-operating EBITDA was 3.0 times (x) and operating EBITDA-to-interest expense was 2.3x at June 30, 2006. These statistics are weaker than comparable year-end (YE) 2005 leverage of 1.6x and coverage of 4.2x. Lower debt levels and contributions from the MCC assets (the low cost Point Lisas Nitrogen joint venture in particular) have mitigated some of the pressure on credit statistics.

The Stable Rating Outlook reflects Fitch's expectations for weaker YE 2006 results and the expected volatility of earnings near-term. While higher corn prices, continued strong corn consumption, and forecasted lower corn stocks could have a positive influence on fertilizer demand next year, many of the same issues that weakened nitrogen fertilizer demand in 2006 are expected to remain hurdles in 2007. In particular, farmers will likely contend with high energy and fertilizer prices again next spring.

Terra Industries, based in Sioux City, Iowa, is a major North American producer of anhydrous ammonia, UAN solutions, and urea and a leading producer of ammonium nitrate in the U.S. and the U.K. For the trailing 12-month period ended June 30, 2006, Terra had revenue of $1.9 billion, EBITDA of approximately $117.9 million, and total debt with equity credit of $354.5 million.

Fitch's Recovery Ratings (RR), introduced in 2005, are a relative indicator of creditor recovery on a given obligation in the event of a default. A broad overview of Fitch's RR methodology as it relates to specific sectors, including a Case Study webcast, can be found at www.fitchratings.com/recovery.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.