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 In NY033, Duff & Phelps Assigns Rating to Valcor's Proposed Issue, issued Wednesday, Sept. 8, we are advised by Duff & Phelps that the first paragraph, second line should read "has assigned a rating of `BB-' (Double-B-Minus) to Valcor" rather than "has assigned a rating of `BB' (Double-B) to Valcor" as originally issued.
 The corrected release follows:
 NEW YORK, Sept. 8 /PRNewswire/ -- Duff & Phelps Credit Rating Co. has assigned a rating of "BB-" (Double-B-Minus) to Valcor Inc.'s proposed offering of $75 million of senior notes due 2003. Proceeds will be used to dividend $50 million to its parent company, Valhi, Inc., and $23 million will be retained by Valcor for general corporate purposes. Valhi plans to use its distribution from Valcor, together with other available funds, to redeem its remaining 12.5 percent senior subordinated notes due 1998. Separately, Duff & Phelps reaffirms its ratings of "B" (Single-B) to Valhi, Inc.'s $102 million outstanding of senior secured liquid yield option notes (LYONS) due 2007, and "B-" (Single-B-Minus) to its $50 million 12.5 percent senior subordinated notes. The latter rating will be withdrawn following redemption of the notes.
 Valcor is a holding company for Valhi's forest products, fast food and hardware products operations, which are wholly owned subsidiaries of Valcor. Valcor was formed as a financing vehicle to allow Valhi to refinance its 12.5 percent senior subordinated notes with lower cost debt. In July, Medite Corporation, Valcor's forest products subsidiary, negotiated a $90 million bank credit facility, consisting of a $75 million term loan and a $15 million working capital revolver. Medite used $60 million of the term loan proceeds to pay a special dividend to Valhi with the remaining $15 million used to prepay existing Medite bank term loans. Valhi redeemed $85 million principal amount of its 12.5 percent senior subordinated notes on Sept. 3, 1993; and the $50 million from the proposed debt issue will be used to redeem its remaining 12.5 percent senior subordinated notes.
 D&P's rating of Valcor recognizes the good niche positions of Valcor's three wholly owned subsidiaries and operating cash flow that will likely be sufficient to meet debt service obligations. However, the subsidiaries also operate within industries which are highly competitive and cyclical. Of concern, therefore, is the relative variability and low predictability of Valcor's operating cash flows coupled with the high degree of financial leverage which will result from the new debt issue.
 D&P does not expect Valcor to reduce its debt leverage over the near- or intermediate-terms, since dividends will probably be upstreamed to Valhi (the covenants of the proposed debt issue permit dividend payments of up to 50 percent of consolidated net income). In addition, the $23 million of proceeds from the proposed debt issue to be currently retained by Valcor may be upstreamed to Valhi at any time. Moreover, Valcor plans to undertake a major expansion of its Ireland medium- density fiberboard (MDF) plant in 1994, which will likely be about 75 percent debt financed, further limiting Valcor's financial flexibility. Debt to total capital, including operating leases, was 38 percent at yearend 1992, vs. a pro forma ratio of 89 percent at June 30, 1993.
 D&P's ratings of Valhi's parent-level debt reflect its holding company structure and the structural subordination to the proposed Valcor notes, other outstanding Valcor debt, and the debt of Valhi's other wholly owned subsidiary, the Amalgamated Sugar Company. Although D&P does not generally view the subsidiaries' debt covenants regarding dividend payments to Valhi as particularly restrictive, any subsidiary debt will have debt service priority on a cash flow basis. Additionally, Amalgamated Sugar's bank debt and government loans are secured by a pledge of the subsidiary receivables and inventory.
 The Duff & Phelps ratings also consider the possibility that excess cash flow at Valhi may be used for dividends or investment opportunities. While the retirement of Valhi's senior subordinated notes will eliminate the dividend restriction imposed by the debt covenants, the company has indicated that it does not intend to pay further dividends in 1993. The ratings incorporate D&P's expectations that Valhi's common dividend will be reinstated, albeit likely at a lower rate than when the dividend was suspended in 1993, and that the company will return to making leveraged acquisitions at some time in the future. Furthermore, problems at Valhi's unconsolidated affiliates, Tremont Corp. and NL Industries, Inc., might require cash infusions from Valhi.
 Valhi, Inc., headquartered in Dallas, owns 49 percent of NL Industries and 48 percent of Tremont, in addition to its 100 percent ownership of Valcor and Amalgamated Sugar. In addition, Tremont holds an additional 18 percent ownership of NL Industries. Harold Simmons, the Chairman of Valhi, Valcor and NL, controls 90 percent of Valhi's stock.
 -0- 9/17/93
 /CONTACT: Doris Nakamura of Duff & Phelps Credit Rating Co., 312-368-3130/
 /PRNewswire -- Sept. 17/

CO: Valcor Inc.; Valhi, Inc. ST: Texas IN: SU: RTG

TW -- NY010 -- 3026 09/17/93 11:01 EDT
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Publication:PR Newswire
Date:Sep 17, 1993

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