Lehman Brothers has flexed the refinancing credit for Regal Cinemas 1/4% after trying to get through the market with a LIBOR plus 2 1/2% deal that also attempted to ease covenants. "Lehman went out at 250 over, but had to flex upwards to 275," said an investor, who estimates the market has backed up from anywhere between 1/4% and 3/8% in the last two weeks. But Regal still gained a 3/4% interest spread cut, though the intention was for a 1% drop, said a banker, who noted the credit is now fully subscribed. As well as the lowered spread, the relaxed covenants on Regal disheartened some existing investors. One buysider noted that though he would not join in the credit for the above reasons, there would be plenty that still would.
The mandatory cash sweep covenant is being removed and the tight restrictions on capital expenditures and additional indebtedness have eased, according to a Moody's Investors Service report. The loan consists of a $150 million revolver and a $220 million term loan that takes out an exit financing put in place at the start of the year. Regal still has high leverage, but has been decreasing this since exit, driven by box office success. A number of other theater companies, including Loews Cineplex and Carmike Cinemas, filed for Chapter 11 after debt-financed over expansion caused the cinema chains to cannibalize on each other.But bankruptcy has allowed the companies to reject previously non-cancelable leases and construction commitments, and close obsolete theatres. There are, however, still continued issues of structural overcapacity within the industry affecting Regal, the Moody's report notes.