Fitch Initiates Coverage on Millennium Chemicals with 'B+' Rating; Outlook Stable

Business Wire, Dec 22, 2004

CHICAGO -- Fitch Ratings has initiated rating coverage on Millennium Chemicals Inc.'s (Millennium) through the following ratings:

-- Convertible senior unsecured debentures 'B '.

Fitch has also assigned initial ratings to Millennium America Inc. as follows:

-- Senior unsecured notes 'B ';

-- Senior secured credit facility 'BB-'.

Millennium America Inc. is an indirect wholly-owned subsidiary of Millennium. The Rating Outlook is Stable.

The ratings are supported by Millennium's business portfolio, market positions in North America and Europe, 29.5% equity interest in Equistar Chemicals LP (Equistar), and earnings leverage during the peak of the chemical cycle. The ratings also consider the volatility in operating earnings through the chemical cycle, cyclical nature of its commodity products and Lyondell Chemical Company's (Lyondell) ownership of the company. Concerns include the potential for softening in demand with rapidly increasing raw material and product prices, and temporary margin pressure as the company realizes price increases for its products. Currently Millennium cannot declare dividends to Lyondell due to certain restrictions in its existing bond indentures. Fitch expects Millennium will be able to declare dividends to Lyondell in 2006 as a result of improvement in net earnings and increased distributions from Equistar over the next 18-to-24 months.

The Stable Rating Outlook reflects the modest improvement in Millennium's acetyls and specialty chemicals businesses and strengthening of supply demand fundamentals for titanium dioxide (TiO2). Fitch expects average selling prices to trend higher if demand remains steady and operating rates continue to increase. Slight margin expansion has occurred in 2004 and in general, is expected to continue as market fundamentals strengthen. Fitch remains moderately concerned about the sustainability of the recovery with increasing energy costs and the overall effect of high petrochemical prices on demand.

As of Sept. 30, 2004, Millennium's balance sheet debt totaled $1.4 billion. The company had a total debt-to-EBITDA of 7.1 times (x) and total adjusted debt-to-EBITDAR, incorporating gross rent, of 7.2x for the latest 12-months ending Sept. 30, 2004. EBITDAR to interest incurred plus rental expense was 1.7x for the same period. Balance sheet debt consists of $1.225 billion in senior unsecured notes and debentures, $150 million in convertible senior unsecured debentures, $26 million in other long-term debt and $6 million in current maturities. Millennium had sufficient liquidity at the end of the third quarter with $313 million in cash and $124 million available under its undrawn senior secured credit facility. The next significant maturity of long-term debt is in 2006 when the $500 million, 7% senior unsecured notes mature.

Millennium Chemicals, Inc., a wholly-owned subsidiary of Lyondell Chemical Company, is a multinational producer of commodity chemicals including TiO2 and related products, acetic acid, vinyl acetate monomer (VAM) and certain specialty chemicals. Millennium also owns approximately 29.5% of Equistar, which produces ethylene, polyethylene and certain co-products such as propylene and benzene. For the latest 12-months ending Sept. 30, 2004, the company had $1.86 billion in net sales and $198 million in EBITDA, as well as $30 million in JV dividends from Equistar.

Millennium is the second largest global producer of TiO2 and the largest producer of titanium tetrachloride in North America and Europe. In addition, the company is the second largest producer of VAM and acetic acid in North America. In 2003, the United States accounted for 51% of sales, UK accounted for 23%, Asia/Pacific accounted for 11%, Europe (excluding UK) and rest of the world accounted for 15% before inter-area eliminations. TiO2 and related products are used in paint and coatings, plastics, paper, elastomers and certain other applications. Vinyl acetate monomer is used to produce a variety of polymers used in adhesives, water-based paint, textile coatings and paper coatings.

The ratings were initiated by Fitch as a service to users of its ratings and are based on public information.