S&P rates Cinemark notes B-

Standard & Poor's assigned a B- rating to Cinemark USA Inc.'s new add-on of $210 million to its 9% senior subordinated notes due 2013 and confirmed its existing ratings including its secured bank loan rating at BB- and subordinated debt at B-. The outlook remains positive.

S&P said the proposed transaction will not materially alter Cinemark's financial profile. Modest benefits include extending the maturity on the refinanced debt from 2008 to 2013 and lowering its effective interest rate.

The ratings on Cinemark continue to reflect its somewhat aggressive financial profile as well as its quality theater circuit, favorable operating performance relative to its peers, and profitable non-U.S. operations, S&P said.

Cinemark's profit margins are among the industry's highest, even compared with those players that were able to substantially improve their theater circuit profitability through bankruptcy reorganization, S&P noted.

Industry profits have benefited from growing attendance levels from late 2000 through 2002, resulting from good film product, a more balanced release schedule, and higher marketing expenditures by the studios. Still, attendance will fluctuate based on film quality, and 2003 comparisons will be difficult.

Because Cinemark has pared its capital expenditures, discretionary cash flow has increased to respectable levels during the past two years; slightly more than half of EBITDA flowed through to discretionary cash flow in 2002, S&P said. The company's lease-adjusted debt to EBITDA ratio has declined but remains high at slightly more than 5x, and its lease-adjusted EBITDA coverage of interest expense has risen to approximately 2.0x from 1.4x in 2000.

S&P rates Rent-A-Center loan BB, notes B+, raises outlook

Standard & Poor's assigned a BB rating to Rent-A-Center Inc.'s proposed $650 million bank loan and a B+ rating to its company's proposed $250 million senior subordinated notes, confirmed its corporate credit rating at BB and raised the outlook to positive from stable.

The proceeds will be used to refinance the company's existing debt and for $200 million of share repurchases. Although the refinancing adds about $200 million of incremental debt, Rent-A-Center significantly delevered its balance sheet in 2002, S&P noted. Moreover, the company's interest burden will be reduced due to the improvement in interest costs on the new debt.

The outlook revision is based on the company's improved operating performance and cash flow generation in 2002, and good financial profile for the rating category, S&P said. EBITDA in 2002 rose to $394 million from $307 million in 2001 due to same-store sales gains, new store growth, and better operating margins.

Same-store sales increased 6% in 2002, following gains of 8% in 2001 and 12% in 2000. S&P added that it expects the rate of same store sales growth to slow due to a more mature store base. Operating margins expanded to more than 25% in 2002, from 23% in 2001. The margin improvement is attributable to more effective pricing of rental merchandise, a reduction of store-level expenses, and sales leverage.

Pro forma for the refinancing transaction, the company is still moderately leveraged with total debt to EBITDA of about 2.5x, S&P said. Leverage had significantly improved in 2002 due to the conversion of about $200 million of company's preferred stock to common equity and the prepayment of $178 million of term debt in 2002. Pro forma for the refinancing transaction, EBITDA coverage of interest is good for the rating category at more than 5x.

S&P raises Crompton outlook

Standard & Poor's raised its outlook on Crompton Corp. to stable from negative and confirmed its ratings including its senior unsecured debt at BBB-.

S&P said the revision follows Crompton's recently announced definitive agreement to sell its organosilicones business to the specialty materials division of General Electric Co.

With proceeds earmarked for debt reduction, this divestiture is clearly a positive factor for the company's liquidity and weak financial measures at a time when business conditions are challenging, S&P said. Still, given ongoing concerns regarding the operating environment, management's commitment to a further lowering of debt beyond this organosilicones transaction is also an important rating consideration, particularly if business conditions remain depressed.

S&P raises Hard Rock Hotel outlook

Standard & Poor's raised its outlook on Hard Rock Hotel Inc. to stable from negative and confirmed its ratings including its subordinated debt at B-.

S&P said the action is in response to the property's steady operating results in the past few years, a modest improvement to credit measures, and the expectation that stable performance will continue.

Hard Rock Hotel's ratings reflect its high debt leverage and lack of cash flow diversity, offset by its niche position and loyal customer base.

Despite a 44% decrease in EBITDA for the fourth quarter ended Dec. 31, 2002, driven by a 4.2% decline in the table games hold percentage, EBITDA for fiscal 2002 declined only 3% over the prior fiscal year, S&P said.

Casino revenues recovered in the quarter ended March 31, 2003, resulting from positive trends in gaming volume and a somewhat better hold percentage than the fourth quarter. This rise in casino revenues, as well as increases in other hotel revenues, contributed to 10% higher total EBITDA for the quarter compared with the comparable prior year period.

S&P said it expects that 2003 performance will reflect modest cash flow growth due to its loyal customer following, its ability to attract high profile entertainment, and announced capital improvements to the property.

Debt leverage for the 12 months ended March 31, 2003, as measured by total debt to EBITDA was under 5.0x and EBITDA coverage of interest expense over the same period was more than 2.0x, S&P noted. In addition to the company's outstanding bonds and bank debt, the Hard Rock Hotel has a total of over $60 million in preferred stock outstanding, which represents the capital that majority owner Peter Morton has infused along with accrued dividends, demonstrating his support for this entity. Dividends on the preferred have accrued since the original investment, rather than being paid in cash. Given improved credit measures since Morton made this investment, it is possible that the company may choose to refinance a portion of the preferred stock at some future date.

Moody's rates Medex loan B1, notes B3

Moody's Investors Service assigned a B1 rating to Medex, Inc.'s new $25 million revolving credit facility and $175 million term loan B and a B3 rating to its senior subordinated notes. A total of $350 million of debt is affected. The outlook is stable.

Moody's said the rating reflects Medex's high leverage and the risks associated with the integration of the assets of Jelco, a business segment of a Johnson & Johnson subsidiary which generates almost twice the revenue of the company itself.

The rating action also incorporates the risks of intensifying competition as Medex seeks to distribute the Jelco product line through its existing infrastructure, especially in Europe and its potential to become a consolidator' within the critical care segment of the medical device manufacturing sector.

Supporting the rating are the company's expected stable cash flows, the result of the fact that most of its products are single-use disposables, Moody's said. Further supporting the rating are positive demographic and market trends. In addition, the safety catheter market is a duopoly.

The stable outlook reflects Moody's view that the company is likely to complete its integration successfully and continue to grow revenue and earnings in line with industry norms.

After the transaction Medex will be highly leveraged, with retained cash flow/total debt projected to be 7% and cash flow from operations/total debt to be 4% in 2003. Moody's projects EBITDA-capex/interest to be 2.3x and total debt/book capitalization to be 77% in the first year.

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