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Loews parent plans to spin off circuit

Onex to organize theater chains as income trust

TORONTO — The parent company of the Loews theater chain is apparently ready to spin off the circuit to raise equity.

Reports in the Canadian press this week indicate that advisers to Onex Corp., Loews’ Canadian parent company, are “putting the finishing touches on a prospectus” that will spin off New York-based Loews along with Galaxy Entertainment, another Onex-controlled theater chain. Prospectus is expected to be filed shortly; a spokesman for Onex declined to comment.

“If in fact it’s true, it doesn’t come as a surprise,” said one analyst. “The intention to do this was clearly signaled when the company filed the IPO prospectus the last time.”

Instead of a straight IPO, Onex is expected to organize the theater chains as an income trust. These vehicles are similar to Real Estate Investment Trusts but apply to other industries. Like a REIT, an income trust is designed to distribute cash to unitholders rather than follow the “grow the company” philosophy of most public corporations.

Together with Los Angles-based Oaktree Capital Management, Onex steered Loews out of bankruptcy last year and indicated it would consider an equity capitalization at a Loews annual meeting in May.

Loews was forced to scrap a planned $300 million IPO due to unfavorable market conditions.

Income trusts have become increasingly popular alternative equity sources in the current market situation because their goal is to provide a stable income stream to investors. They also have tax advantages.

Privately held by Onex and Oaktree, New York-based Loews controls 2,835 screens in 281 locations in major cities throughout the U.S., Canada and Mexico as well as in Spain and South Korea through subsidiaries.

Loews would be the latest entertainment company to test the waters for income trust funding. The vehicles have become popular recently among bond investors eager for steady income streams at rates higher than those available from bonds.

Alliance Atlantis Communications is another media company that chose an income trust over an IPO. It issued a release Thursday saying it expects to receive gross proceeds of about C$225 million ($168 million) from the sale of the 43% interest in its motion picture distribution business to a new income trust called the Movie Distribution Income Fund.

(Meredith Amdur in New York contributed to this story.)

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