S&P rates Regal convert B

Standard & Poor's assigned a B rating to Regal Entertainment Group's proposed $125 million convertible senior notes due 2008 and a BB- rating to Regal Cinemas Inc.'s proposed $315 million series D term loan addition to its senior secured bank facility.

S&P also affirmed the other ratings for the parent, Regal Entertainment, and subsidiary, Regal Cinemas.

The outlook remains stable.

Proceeds, along with about $190 million in cash and a small revolving credit drawdown, will be used to fund a $600 million - $625 million special dividend to the Regal Entertainment shareholders. Subsequently, Regal Entertainment will reduce its quarterly dividend by about 20%.

The ratings reflect the mature and highly competitive nature of the movie exhibition industry and a somewhat aggressive financial profile but also good profit margins and meaningful discretionary cash flow, S&P said.

Year-to-date industry box office revenue is down about 10%. Regal's pro forma first quarter EBITDA was down 8.8% compared with very strong year-ago levels. However, EBITDA margins remain solid at 20.5% and more than 30% of EBITDA flowed through to discretionary cash flow.

EBITDA coverage of lease-adjusted interest expense for the year ended March 31 decreased to about 2.6x from 2.8x. Also, lease-adjusted leverage increases to 4.4x from 3.8x.

The convertible is rated two notches below the BB- corporate credit rating due to the lack of assets and the magnitude of structurally senior debt and operating liabilities of the subsidiaries.

Liquidity benefits from a largely unused $145 million revolving credit facility, reasonable covenant cushion on a pro forma basis and moderate levels of capital expenditures.

The proposed transactions will not meaningfully reduce discretionary cash flow, as increased interest expenses will be partially offset by the lower annual dividend, S&P said.

On a pro forma basis, S&P expects Regal will convert at least 20% of its EBITDA to discretionary cash flow. Annual debt maturities of about $30 million through 2006 are relatively small compared with the company's discretionary cash flow.

Moody's rates new Province Healthcare notes B3

Moody's Investors Service rated Province Healthcare Co.'s proposed $150 million of senior subordinated notes at B3 and confirmed its existing ratings, including the convertible notes due 2008 at B3.

The outlook remains stable.

The confirmation anticipates that operating trends over the next couple of years will be positive following an unexpectedly high number of physician departures during 2002, Moody's said.

The company's focus on building its physician base and controlling costs should drive positive revenue and EBITDAR growth as well as enhance margins.

Ratings are limited by high leverage and concern over the company's ability to deleverage intermediately, given its appetite for acquisitions, Moody's added.

Moody's rates new L-3 notes Ba3

Moody's Investors Service assigned a Ba3 ratings to L-3 Communication Corp.'s new $400 million 6.125% senior subordinated notes due 2013.

The rating, one notch below L-3's senior implied rating, reflects the junior position in claim to $750 million in senior secured credit facilities, which consists of a $500 million revolving credit facility that matures in 2006, and a $250 million 364-day revolving facility maturing February 2004.

Proceeds will be used to prepay L-3's existing $180 million 8.5% senior subordinated notes (Ba3), which are callable in May, and general corporate purposes.

After this transaction, Moody's estimates L-3 will have some $270 million in cash on its balance sheet. Combined with $675 million in availability under its senior secured credit facility, liquidity will be about $1 billion.

Moody's anticipates that L-3, which has been actively acquiring companies in the defense sector ($1.7 billion spent in 2002), will continue to be acquisitive in the near term, and may pursue additional financing for future large acquisitions.

Moody's noted the size of this offering, more than twice the amount outstanding of the debt retired, will have a small impact on credit fundamentals.

Interest coverage will not materially change, while leverage, as measured by debt/EBITDA will increase slightly from 3.2x for the 12 months ending in March to 3.6x pro forma. Total debt outstanding will increase from $1.8 billion to over $2 billion. None of this debt becomes due before 2008.

However, Moody's noted the status of L-3's pension plans, under-funded by $282 million as of December, is significantly higher than that of the previous year $102 million.

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