Cinemark USA's plan to conduct an initial public offering and refinance its bank debt has prompted the rating agencies to turn positive on the movie-theater operator. The reduction of senior secured leverage from $350 million to $250 million is one of the reasons Moody's Investors Service has rated the company's new credit facility B1, one notch above its senior-implied rating and three notches above its bonds. The new facility, which consists of a $150 million term loan and a $100 million revolver, has been rated BB- by Standard & Poor's.
The Plano, Texas, company will have about $600 million in debt after the IPO is complete and the new credit is in place. "The IPO is potentially a $200 million transaction, and the market for theatre credits is very strong," noted Russell Solomon, senior v.p. at Moody's. He added that the collateral package would cover the bank debt in a default scenario. However, there are downsides to the credit.
"Leverage is still high, even after the IPO," Solomon said. "Cinemark and AMC Entertainment were the only big names not to declare Chapter 11, and this hurts them comparatively," he added, explaining that others, such as Regal Cinemas, were able to de-lever under protection. In addition, there is still structural overcapacity in the industry and, although box office demand has been very strong since the end of the fourth quarter, one cannot count on that level of demand for a sustained period of time, he said.
Cinemark has a large and modern theatre base, close to 70% of which has stadium seating and has been built since 1995. Operating in smaller, less competitive suburban markets is also an advantage, Solomon said. Calls to Robert Copple, cfo of Cinemark, were referred to a spokeswoman, who declined to comment.