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Scrapped IPOs Impact Cinemark, Kinetics

17 Aug 2002

Standard & Poor's has revised its outlook on Cinemark USA from positive to stable following the company's postponement of a planned initial public offering and bank loan refinancing. "The postponement of the IPO due to weak market conditions will delay the expected improvements to Cinemark's capital structure and liquidity that were factored into the previously assigned positive outlook," said Steve Wilkinson, credit analyst. The rating agency affirmed Cinemark's corporate credit rating of B, but it withdrew its BB- rating on the proposed $250 million bank loan.

Proceeds from the IPO were expected to reduce the Plano, Texas, company's debt by about $180 million and, together with the bank loan refinancing, would have reduced near-term debt maturities and increased borrowing capacity under its revolver. "As a result, the likelihood of a near-term upgrade has been pushed back, making a stable outlook more appropriate," Wilkinson said. Cinemark expects to proceed with the IPO and the bank loan refinancing when market conditions improve.

* Kinetics Group also was downgraded due to a scrapped IPO. Kinetics had planned to repay all its existing debt this month with proceeds from an IPO of its Celerity subsidiary and a new $210 million credit line led byBank of Nova Scotia. Like Cinemark, current conditions in the equity markets forced this plan to be shelved for the time being.

As a result, Fitch Ratings has downgraded the company's senior secured credit facilities from BB- to B. The downgrade reflects the significant weakening of credit protection measures and increasingly limited financial flexibility, due primarily to a downturn in capital expenditure by semiconductor manufacturers. The downturn has placed pressure on some of Kinetics' financial covenants. Fitch believes the company will need to seek a future amendment or waiver for covenant relief. The outlook is negative.

* Meanwhile, Fitch has upgraded Solutia's senior secured bank facility to BB- from B based, in part, on the recent completion of delayed refinancing plans. Solutia completed a $233 million note offering in July and extended and reduced its revolving credit agreement earlier this month (LMW, 8/12).

The credit was reduced from $800 million to $600 million, half of which will be an amortizing term loan. Solutia had to pay an extra 400 basis points to secure the agreement and is now paying LIBOR plus 53/ 4% for the revolver and term loan. But with the extension of the credit line to August 2004, proceeds from Solutia's $233 million note offering were released from an escrow account.

17 Aug 2002