Regal Cinemas' recent amendment to its bank facility has caused some concern at Moody's Investors Service, since measures designed to protect investors have been removed or weakened. "The concern is that the [movie-theatre] industry is not out of the woods yet," said analyst Russell Solomon. There are still too many screens relative to attendance, even though many theater companies have moved through the Chapter 11 restructuring process. "The box office has been unusually strong, and this makes marginally profitable theaters look good," he explained. "The box office is fickle and, though we think the pipeline for the rest of the year is positive, you could see a dip leading to deteriorating operating performance," he added.
The mandatory cash sweep in the credit facility has been removed in the amendment pushed through by Lehman Brothers earlier this month. Tight restrictions on capital expenditures and additional indebtedness are also eased, Solomon noted. The amendment is being done to enable a consolidation strategy, integrating Edwards Theatres and United Artists, which could lead to synergies, he said. But the expectation is that any further strategic acquisitions will be done through equity financing, and any further releveraging would be a cause for concern, Solomon added. The facility consists of a $150 million revolver and a $220 million "B" loan.
Regal, along with competitors Loews Cineplex and Carmike Cinemas, emerged from Chapter 11 earlier this year after rejecting previously non-cancelable leases and construction commitments and closing obsolete theaters. The bank group for Regal received 100% with accrued interest on the old loans (LMW, 1/14). Pricing on the credit rested at LIBOR plus 31/ 2% after being offered at LIBOR plus 4%. Last month's amendment saw Lehman attempt to reprice at LIBOR plus 21/ 2%, but a turn in the market prompted investors to demand 25 basis points more to swallow the amendment (LMW, 8/5).