Moody's rates new Regal Cinemas notes B3

Moody's Investors Service assigned ratings to Regal Cinemas, Inc.'s proposed Chapter 11 exit financing, assessing its planned $200 million of senior subordinated notes due 2012 at B3 and its $100 million senior secured revolver due 2007 and $270 million senior secured term loan due 2008 at B1. The outlook is stable.

Moody's said its ratings reflect Regal's "still high" leverage, albeit lower than before its reorganization, particularly on a lease-adjusted basis, ongoing concerns about the continuing overcapacity in the industry, uncertainty about future consolidation, both for Regal and the industry as a whole, and the financing and structuring of any consolidation.

Regal is also subject to risks affecting whole movie theater industry, "including its maturity and slow attendance growth, intense competition, dependency on movie studio output, and the box office risk and seasonality inherent in the film product," Moody's said.

However Regal benefits from its large size and comparatively strong balance sheet with the restructuring having pared its debt burden by more than two-thirds, improved liquidity, better cash flow coverage levels and "notably" expectations of positive free cash flow generation and corresponding debt reduction under a considerably tighter bond covenants and bank credit facility terms and conditions than previously, Moody's added.

S&P rates new Regal Cinemas notes B-

Standard & Poor's assigned a B- rating to Regal Cinemas Inc.'s planned $200 million senior subordinated notes and a B+ rating to its proposed senior secured bank facility. The outlook is stable.

S&P said the ratings reflect Regal's "significantly improved, but still risky, financial profile and its upgraded and relatively modern theater circuit. These positives are balanced by a still difficult, although improving industry operating environment."

S&P noted that through the bankruptcy process Regal was able to reject leases for obsolete theaters, renegotiate leases for marginal sites and convert a large amount of debt to equity. It now has about 20% fewer screens at relatively young facilities and with a high percentage of screens with stadium seating and theaters with more than 14 screens.

The rating agency added that it expects "Regal will be able to maintain and gradually improve its credit profile over time as a result of the more stable industry operating environment and an expected moderation of the company's financial policies."

S&P downgrades MeriStar, Host, Felcor, Hammons, Equity Inns, confirms Prime, Extended Stay, Boca

Standard & Poor's downgraded a number of lodging companies and confirmed that ratings on a smaller number. All were taken off CreditWatch with negative implications. Ratings affected include the following:

--Prime Hospitality Corp. $120 million 9.25% first mortgage notes due 2006 confirmed at BB, $200 million 9.75% senior subordinated notes due 2007 confirmed at B+ and $200 million secured revolving credit facility confirmed at BB;

--MeriStar Hospitality Corp. $150 million 8.75% senior subordinated notes due 2007, $125 million 4.75% convertible subordinated notes due 2004 and $55 million 8.75% senior subordinated notes due 2007 all downgraded to B- from B; MeriStar Hospitality Operating Partnership, LP bank facilities, $300 million 9% tranche 1 senior unsecured notes due 2008, $200 million 9.125% tranche 2 senior unsecured notes due 2011 and $250 million 10.5% senior unsecured notes due 2009 all downgraded to B+ from BB-;

--Host Marriott Corp. $100 million 10% cumulative redeemable preferred stock, $100 million 10% class B cumulative redeemable preferred stock and $130 million 10% class C cumulative redeemable preferred stock due 2006,all downgraded to B- from B; Host Marriott Financial Trust $400 million 6.75% convertible quarterly income preferred securities (QUIPS) due 2026 downgraded to B- from B; Host Marriott LP $500 million 7.875% senior notes 2005, $1.2 billion 7.875% senior notes 2008, $775 million revolving credit facility due 2003, $500 million 8.45% senior notes due 2008, $250 million 9.25% senior unsecured notes due 2007, $300 million 8.375% senior notes due 2006, and $450 million 9.5% senior notes due 2007 all downgraded to BB- from BB;

--FelCor Lodging LP $175 million 7.375% senior notes due 2004, $125 million 7.625% senior notes due 2007, $400 million 9.5% senior unsecured notes due 2008, and $600 million 8.5% senior notes due 2011 all downgraded to BB- from BB; FelCor Lodging Trust Inc. $150 million cumulative convertible preferred stock and $125 million 9% cumulative preferred stock both downgraded to B- from B and $250 million term loan downgraded to BB- from BB;

--John Q. Hammons Hotels $285 million 8.875% first mortgage notes due 2004 and $90 million 9.75% first mortgage notes due 2005 downgraded to B from B+;

--Extended Stay America Inc. $200 million 9.15% senior subordinated notes due 2008 and $300 million 9.875% senior subordinated notes due 2011 confirmed at B and bank facilities confirmed at BB-;

--Boca Resorts Inc. $340 million 9.875% senior notes due 2009 confirmed at B- and $146 million revolving credit facility due 2002 confirmed at BB-;

--Equity Inns Inc. $69 million cumulative preferred stock downgraded to CCC+ from B-.

S&P rates new Coventry Health notes BB+

Standard & Poor's assigned a BB+ rating to Coventry Health Care Inc.'s planned offering of $175 million of 10-year unsecured notes. The outlook is stable.

S&P said its rating reflects Coventry's "very good quality balance sheet supported by a conservative investment portfolio strategy and prudent use of financial leverage."

While goodwill and intangibles, mainly from acquisitions, are "somewhat unfavorable" at about 40% of shareholder equity, given the industry's recent history of asset write-downs and restructuring charges, S&P said that so far Coventry has been able to "successfully integrate numerous operations that conducted business in markets already familiar to Coventry but in which the acquired company lacked sufficient scale or expertise."

S&P also noted Coventry's "very strong earnings and cash flow" with favorable pricing conditions and strong brand equity in its core markets ensuring the company's financial picture continues to improve.

Coventry's capital adequacy is good but near the marginal level, S&P said.

S&P also noted that Coventry has been relatively successful with its acquisition-oriented growth strategy so far but cautioned that current and future integration risks remain, particularly if the size of the deals were to increase.

Moody's rates Coventry Health notes Ba3

Moody's Investors Service assigned a Ba3 rating to Coventry Health Care, Inc.'s planned $175 million senior note offering. The outlook is stable.

Moody's said its assessment recognizes Coventry's "demonstrated ability to turn around under-performing health plans, its moderate level of debt, and the diversity of its parent cash flow comprised of dividends from regulated entities as well as funds from other, non-regulated sources.

"Risk factors include limited dividend and parent cash flow capability, a growth strategy which generally requires capital infusions, relatively small size, existence of primarily traditional HMO and risk lives, and strong provider groups in certain key markets," Moody's added.

After a difficult period in the mid-1990s, Coventry under new management has emerged as a relatively successful consolidator of small, underperforming plans, Moody's said.

Going forward, Moody's said it understands that targeted organic membership growth of 3-5% and price increases in the low-to-mid teens will be supplemented with acquisitions, allowing for top-line growth in the 20% range. The ratings assume Coventry will continue executing this strategy without raising leverage since acquisitions are expected to be funded largely using internally generated funds.

Moody's rates new AMC Entertainment notes Caa3

Moody's Investors Service assigned a Caa3 rating to AMC Entertainment Inc.'s planned offering of senior subordinated notes and confirmed the ratings on AMC's existing debt, including its $425 million guaranteed senior unsecured revolver due 2004 at B3, its $200 million of 9½% senior subordinated notes due 2009 at Caa3 and its $225 million of 9½% senior subordinated notes due 2011, also rated Caa3. The outlook remains stable.

Moody's said AMC's ratings reflect its high leverage and low coverage of interest by pre-rent cash flow, particularly considering its substantial amount of off-balance sheet operating leases. Also incorporated in the rating is strong competition and excess screen capacity both industry-wide and in AMC's markets, comparatively weak covenant protection for investors under a "highly flexible" series of bond indentures and uncertainty about future consolidation within the industry and for AMC, and the likely financing sources.

In addition, the movie theater industry as a whole is suffering slow attendance growth, theater decay and obsolescence, dependence on a relatively small number of studios for film distribution, box office cyclicality and volatility, and the seasonality of film product.

However, the ratings continue to assume a steady supply of "good" movies, as well as the absence of any meaningful incremental losses from theater closings, Moody's added.

At the same time, AMC benefits from large size and desirable locations in mostly major markets with good demographic trends, a solid liquidity position assuming a successful note sale and equity offering, a largely modernized asset base with nearly 16 screens per theater location on average and the renewed presence of an equity layer beneath the debt which serves as a cushion in a downside scenario, Moody's said.

It also recognized operational improvements in the last few quarters, with further gains expected over the near-term.

Moody's downgrades UnitedGlobalCom

Moody's Investors Service downgraded the debt of UnitedGlobalCom and its subsidiaries, affecting $3.4 billion of debt and preferred securities.

Ratings affected include: UnitedGlobalCom's $1.375 billion (face) 10¾% senior secured discount notes due 2008, lowered to Ca from Caa3, United Australia/Pacific's $447.42 million (face) of 14% senior discount notes and $45.45 million (face) of 14% senior discount notes, both lowered to C from Ca. Moody's withdrew the ratings on UnitedGlobalCom's $355 million (face) of 10 7/8% senior unsecured discount notes due 2009, previously at Ca and recently redeemed, Austar United Communications' A$200 million senior secured revolving credit facility due 2006, previously at Caa1 and currently in technical default and VTR GlobalCom's $140 million senior secured term loan due 2002 and $80 million senior secured term loan due 2002, both previously at B3 and in imminent need of refinancing. Moody's confirmed UnitedGlobalCom's $425 million of 7% series C preferred stock and $287.5 million of 7% series D preferred stock, both rated C. The outlook remains negative.

Moody's said the downgrades reflect the recently announced tender offer for UnitedGlobalCom's remaining debt along with Moody's expectation of a similar offer for United Australia/Pacific's debt. The tender is at "severely distressed levels" and results in an expectation of more significant credit losses than previously anticipated, the rating agency said.

S&P rates new Owens-Brockway notes BB

Standard & Poor's assigned a BB rating to Owens-Brockway Glass Container Inc.'s planned offering of $300 million senior secured notes due 2009. S&P also confirmed all ratings of Owens-Brockway's parent Owens-Illinois Inc. including its senior unsecured debt at B+, its senior secured debt, its preferred stock at B and Owens Illinois Group Inc.'s senior secured debt at BB. The outlook is negative.

S&P said the confirmation of existing ratings incorporates expectations that the company's "asbestos liability will remain manageable and that management's efforts to improve cash flow protection measures will be realized in the near to intermediate term."

The rating agency said it believes Owens-Illinois' asbestos liabilities should soon moderate, given the time since its products were discontinued in 1958 and the average age of its claimants in their mid-70s.

But it added: "With modest insurance proceeds forthcoming, Owens-Illinois' net cash outlays for asbestos will likely increase in the intermediate term."

S&P noted 2001 is expected to be Owens-Illinois' biggest year to date for asbestos payments at $245 million against $182 million in 2000. This rise was due to both increased filings and managements efforts to resolve claims.

Moody's puts Western Wireless on review for downgrade

Moody's Investors Service put the ratings of Western Wireless Corp. on review for possible downgrade, including its $2.1 billion senior secured credit facility rated Ba2 and its $200 million of 10.5% senior subordinated notes due 2006 and $200 million of 10.5% senior subordinated notes due 2007, both rated B1.

Moody's said it began the review in response to Western Wireless' poorer than expected results from its domestic operations and its increased exposure to cash-consuming international wireless operations. Domestic financial performance has been hurt by lower profitability from roaming, slower subscriber growth and higher capital expenditures on multiple technology upgrades, the rating agency said.

Moody's downgrades Elgar Holdings

Moody's Investors Service downgraded Elgar Holdings, Inc., including its $90 million 9 7/8% guaranteed senior notes due 2008, lowered to Caa3 from B2 and its $8.75 million guaranteed senior secured term loan facility due 2003 and its $5.0 million guaranteed senior secured revolving credit facility due 2003, both lowered to B3 from B1. The outlook remains negative.

Moody's said the lower ratings reflect the heightened risk of less than full principal recovery in light of the continued deterioration in Elgar's revenues in the third quarter due to severely weakened demand in its semiconductor test equipment and telecommunications markets. During the three months, Elgar recorded $12.9 million in revenues, 24% lower than the year-earlier period and 16% lower than the second quarter.

Moody's noted Elgar has struggled with a large debt load since its February 1998 recapitalization. In addition, its reliance on automated semiconductor test equipment to diversify its space satellite and defense businesses has been set back twice by downturns in high technology spending, ultimately constraining the company's scale of operations, Moody's said.

As of Sept. 29, Elgar's liquidity was "tenuous," with its $5 million revolver fully drawn and a "nominal" cash balance, the rating agency said.

S&P cuts DESA to D

Standard & Poor's downgraded DESA International Inc. to D. Ratings affected include DESA's $130 million 9.875% senior subordinated notes due 2007, cut to D from CCC- and its bank facilities, cut to D from CCC+.

The action follows the company's failure to pay interest due Dec. 15, 2001 on its senior subordinated notes.

DESA was prohibited from making the payment because it is in breach of financial covenants under its bank credit agreement, S&P said. The rating agency said that despite negotiations to cure the breach it is not confident the issue will be resolved.

S&P downgrades Eldorado Resorts

Standard & Poor's downgraded Eldorado Resorts, LLC and removed the ratings from CreditWatch where they were placed on Nov. 15, 2001. Ratings affected include Eldorado Resorts LLC's $100 million 10.5% senior subordinated notes due 2006, lowered to B- from B and its $40 million senior secured revolving credit facility due 2006, lowered to BB- from BB. The outlook is stable.

S&P said the downgrade reflects Eldorado's "weaker-than-expected operating results during 2001 and the expectation that, due to the continuing weak economy and the increasingly competitive environment in Reno, operating results are likely to continue to remain pressured in the near term."

S&P said Eldorado's ratings are based on its narrow business focus, competitive market conditions and weaker-than-expected operating results, offset by a good competitive position in the Reno market and modest capital spending requirements.

S&P removes Huntsman International from negative watch

Standard & Poor's removed Huntsman International Holdings LLC and its Huntsman International LLC unit from CreditWatch with negative implications and confirmed their ratings including Huntsman International Holdings' $242.7 million 13.375% senior discount notes due 2009 at B-, Huntsman International's bank facilities at B+ and Huntsman International's $600 million 10.125% senior subordinated notes due 2009, €200 million 10.125% senior subordinated notes due 2009 and €250 million senior subordinated notes due 2009, all at B-. The outlook is developing.

S&P said its action follows the announcement that Imperial Chemical Industries PLC has agreed to delay the sale of its minority interest in Huntsman International Holdings until 2003.

The news removes the concerns prompted by ICI's previous announcement that it had exercised an option to put its shareholdings in the company to Huntsman Specialty Corp., a subsidiary of Huntsman Corp. S&P said that ICI's proposed sale of its interest raised the risk that Huntsman Corp. could gain greater control of Huntsman International, "thereby strengthening ties to Huntsman Corp.'s deteriorating financial profile."

S&P was also concerned Huntsman management could attempt to use debt capacity at Huntsman International to purchase ICI's interest or that another outside party could purchase ICI's interest.

Moody's rates new Interface notes B2, raises outlook to stable

Moody's Investors Service assigned a B2 rating to Interface, Inc.'s planned offering of $175 million senior notes due 2010. It also confirmed the company's existing ratings and raised the outlook to stable from negative, including its $150 million of 7.3% guaranteed senior unsecured notes due 2008 at B2 and its $125 million of 9.5% guaranteed senior subordinated notes due 2005 at B3.

Moody's said it raised the outlook because the new issue of senior notes and modifications to its revolving credit facilities will ease liquidity pressures on the company.

But the rating agency notes its assessment reflects "weak performance in recent quarters and Moody's concern about the impact of poor industry fundamentals on sales, margins, and cash generation."

Margins have significantly declined on lower sales volumes, Moody's said.

Moody's cuts Gateway to junk, still on review

Moody's Investors Service downgraded Gateway Inc. including lowering its senior unsecured rating to Ba1 from Baa3 and kept the rating under review for possible further downgrade. The action affects $1.3 billion of debt.

Moody's said it is increasingly concerned about Gateway's ability to maintain or grow revenues and market share in the intensely competitive U.S. personal computer market, and therefore to achieve its goals of returning to stronger levels of profitability.

Moody's said its review will "focus on the company's plans and prospects to restore and sustain profitability and market share."

Preliminary fourth quarter results indicated a 15% sequential decline in unit sales, coming on top of a 11% sequential decline in the third quarter, Moody's said. The rating agency noted management had expected the second half of 2001 would show sequential increases in unit sales.

"Notwithstanding expectations of fourth quarter pretax profitability, aided by a higher priced mix of units and cost cutting efforts as it continued with its strategy of delivering integrated technology solutions, Moody's views declining unit sales as negative for the franchise longer term," the rating agency said.

Moody's puts Advantica on review for downgrade

Moody's Investors Service put Advantica Restaurant Group, Inc. under review for possible downgrade including its $200 million revolving credit facility rated B1 and its $529.6 million 11.25% senior unsecured notes due 2008 at B3.

Moody's said its review is in response to Advantica's recently announced exchange offer for the senior notes.

In addition to the outcome of the exchange and its effects on noteholders, Moody's said it will look at Advantica's intermediate-term liquidity position, expectations for "meaningful operating improvements" at Denny's, and the likelihood that the company will be able to recoup its $70 million loan to FRD Acquisition Co. in a timely manner.

S&P rates new Interface notes BB

Standard & Poor's assigned a BB rating to Interface Inc.'s planned offering of $175 million notes due 2010.

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