Andrews, Texas

Introduction

This writer began following the issue of attracting nuclear plants to Andrews County in October 2005 when David Watts and James Wright, both of UTPB, came to town to talk about building a nuclear reactor here. Since then, it has become painfully evident that the presentation of the nuclear issue to the public has been one-sided.

All of the public meetings here have been with men who have a professional or financial stake in building these nuclear plants. (There has been a meeting attended by employees of the Texas Commission on Environmental Quality. More on that later.) There have been no public meetings with anyone who could discuss the dangers of the nuclear industry, the actual track record of the industry, terrorism, or other relevant subjects.

Also disturbing is the fact that Don Ingram, current publisher of the Andrews County News, has followed the example of his larger brethren in the Legacy Media by rejecting journalism in favor of activism. Ingram fancies himself an economic planner and is a strong supporter of bringing nuclear plants to the county. Though woefully unqualified to cover a high-tech industry or the world of big business, he continues to express himself vigorously. Not only has his reporting been slanted, he has largely refused to print dissenting letters and he has withheld critical information from his readers.

This Web site will attempt to provide important information the people of this area are not getting elsewhere.

WCS, Valhi, and Harold Simmons

Waste Control Specialists, the company that owns and operates the nuclear dump in western Andrews County, is owned by Valhi, Inc. A tiny fraction of Valhi stock is traded on the New York Stock Exchange (ticker symbol: VHI). There is a complicated corporate and legal structure involved, but almost all of Valhi is, in effect, owned by Harold Simmons.

Simmons made his fortune as a corporate raider. His real love was to find an undervalued company, borrow the money to buy it, and then construct and execute the deal. When he got a company, he would give general instructions and turn it over to someone else to run. Then he would search for the next company to acquire. Companies were trading cards to him. His days doing this were largely finished by the adoption of company defenses designed to stop raiders.

While there were larger economic benefits to the activities of raiders, we should not be naïve about them. Corporate raiders were not nice men. Simmons has always been concerned with gaining large amounts of money, and he has not been particularly concerned with scruples. He has no compunction about breaking his word or trying to get out of legal contracts. He is a shark in the business world. A very big shark. You had better believe he has a team of lawyers and subordinates who know what they are doing.

Andrews citizens should remember that several of Simmons's companies have gone under and that he has nearly gone bankrupt. The Simmons mark on a company is no guarantee of its longevity.

It is interesting to note that as of April 29, 2009, the Andrews County library's copy of Golden Boy, the biography of Simmons, had been checked out only four times. The library got the book in 2004.

How many people in this area understand this man?

Source:

Golden Boy: The Harold Simmons Story, by John J. Nance.

Co-signing a $75,000,000 Loan

Now that he has received his licenses from the TCEQ for the permanent disposal of new classes of waste at the Andrews County site, Simmons needs $75 million to construct landfills. Since he does not want to scrape together his own cash and since he cannot get a loan at an interest rate he is willing to pay, he wants us to borrow the money for him.

As described below, Valhi has very poor credit ratings. If it could get a loan from a commercial source, the interest rate would be very high. Municipal bond rates are low, so if the county were to issue bonds and give the money to Simmons, he would pay a lot less than he would otherwise have to pay. Sweet deal for him, isn't it?

Don't you wish the county would borrow money for you the next time you want to buy a house or a car?

The Argument Given for the Bonds

The county will receive a cut of WCS's revenue and an unknown number of the company's workers as residents, so the argument is this: money. Money for the county and local businessmen, as soon as possible. Don't wait for the free market to work.

WCS men have stated that failure of the bond measure will result in only a delay of construction of the waste landfills. Evidently some area residents simply cannot wait.

The Argument Against the Bonds on Principle

Absent from the remarks by supporters of the bond issue has been any mention of principle. Why is issuing bonds in order to loan the money to a company a proper function of government?

It is not.

Any government action has an underlying principle. Those who support or merely acquiesce to the action accept the principle and its long-term consequences.

The underlying principle here is this: the rejection of capitalism—true free enterprise—and its incremental replacement by government. Government by whim. Special favors for some and not others. Growing government involvement in the economy, and in ways not foreseen now. After all, how many people knew we would be asked to borrow $75 million for a company?

In a true free enterprise system, companies operate under a minimal level of regulation, but they are born, live, and die by the work, judgment, and ability of their owners. They do not get special favors from government, even if such favors are popular.

Think whim is not involved here? By what principled argument will the county refuse the next businessman who approaches and pleads, “Please borrow money for me. You did it for this other guy”? Size of the company? (A smaller company would bring less economic benefit, but it would come at a lower risk.) Popularity? The political correctness of the business? These are not matters of principle.  How is that decision to be made except by whim?

This is government by men, not government by laws.

Since the county will own part of a nuclear waste dump, why not part of a car dealership, part of a vacuum cleaner factory, a fleet of well servicing units? Does “government ownership of the means of production” sound familiar? The Valhi lease-back arrangement is just temporary, the reader may say. “Temporary” is how many government activities begin.

Many of us are dismayed to see virulent enemies of capitalism in control in Washington. But the attack on capitalism is occurring at all levels of government. Now it is here in Andrews.

When I told William Lindquist, CEO of WCS, that I opposed issuance of the bonds on principle, he could not defend his position. He tried to change the subject to the near-term tangible benefits to the county. Sad.

Valhi's Poor Financial Condition

This section may look long and boring. Trust me, it isn't boring.

The April 26, 2009, issue of the Odessa American had a front-page article in which Andrews residents Tom and Rhonda Stark expressed their concern about the poor credit rating given to Valhi by Standard & Poor's. The Andrews County News knew four weeks earlier about Valhi's poor credit ratings and massive debt, but chose not to print that information. How do I know the paper knew? I told Sam Kaufman, ACN news editor. In the March 29 edition of the paper, Kaufman had written that Valhi “has no significant debt,” an absurd error I had to address. He and Ingram have yet to correct that false statement.

There are three major agencies that assign credit ratings to companies: Standard & Poor's, Fitch, and Moody's. To my knowledge, Moody's does not cover Valhi. Fitch has lowered Valhi's rating this year from a bad one to a worse one. This year alone, S&P has dropped Valhi's credit rating at least twice. On February 18, S&P dropped the rating from B to B-. On March 20, the rating was dropped two notches to CCC. Below are the S&P credit ratings above CCC, in descending order:

AAA

AA+
AA
AA-

A+
A
A-

BBB+
BBB
BBB-

BB+
BB
BB-

B+
B
B-

CCC+

Long list, isn't it? There are 17 ratings above CCC.

If a company with a rating below BBB issues bonds, they are “high-yield corporate bonds,” also known as “junk bonds.” Investors in such bonds demand a high interest rate because the risk of default is high.

Any company, such as Valhi, which has publicly traded stock must file periodic reports with the Securities and Exchange Commission. These are available on the SEC's Web site. Of particular interest are the Form 10-K and the Form 10-Q. The 10-K, an annual report, contains detailed financial information. The 10-Q, a quarterly report, contains less comprehensive information.

It takes only a brief look at Valhi's latest 10-K to see troubling things which began well before the current recession.

One of the first things to notice is that Valhi's long-term debt has been growing since 2005 and at the end of 2008 stood at $911 million. With $75 million in bonds to back, the company's long-term debt will be close to $1 billion.

Valhi's 2007 net income (the proverbial “bottom line”) was a loss of 40 cents per share. The 2008 net income was better, but still a loss of 1 cent per share.

Another very important measure of a company's financial health is “cash provided by operating activities.” This is essentially the cash coming in minus the cash going out, not counting interest paid or received. It is a good look at the company's business itself. For Valhi, this number has dropped every year since 2004 and was negative last year. Not good.

Given Valhi's poor performance, it is interesting to note that it continues to pay dividends. If we look at only the last two years, we see that in 2007 Valhi paid 40 cents per share in dividends. In 2008, it also paid 40 cents per share. The board has recently declared a dividend of 10 cents per share for the first quarter of this year. So, in the last two and a quarter years, Valhi has paid about $103 million in dividends.

Curious. Valhi has massive debt and is in desperate need of cash, yet Simmons continues to take large amounts out.

It will be interesting to learn whether Simmons takes out another $100 million in dividends over the next two years after we have co-signed a loan to him for $75 million.

Sources:

Securities and Exchange Commission: www.sec.gov
To find Valhi's reports, note that the company name is Valhi, Inc. and ticker symbol is VHI.

Standard & Poor's
www.standardandpoors.com
After registration, which is free, use the “Find a Rating” feature.

Business is Business

One of the primary rules of the business world is this:

That means you maintain your objectivity about it. Do not become emotionally attached.  When something is wrong, admit it.

Too many people in Andrews have married WCS.

No matter what guarantees you think you are getting, you do not jump into a $75 million hole with a company that has a very bad credit rating. Especially if that company is owned by a man like Harold Simmons. If the only reason is to avoid a delay, co-signing becomes a foolish risk borne of unreasoning devotion and impatience.

Have we not seen investors in huge, supposedly solid companies lose their shirts?

Vote AGAINST the bonds ON PRINCIPLE.