Bankruptcy exit credits for Loews Cineplex and Carmike Cinemas are set to emerge over the coming weeks with the market hoping for a reception similar to that of Lehman Brothers' $370 million exit financing for Regal Cinemas, which had a blockbuster opening. Regal's term loan "B" blew out with four times oversubscription and over 50 accounts. If Loews and Carmike open to similar reviews, it would mark a drastic turnaround in sentiment for a sector shunned just over a year ago.
Deutsche Bank has been tapped by Loews for a $100 million revolver to replace the debtor-in-possession facility and the bank is providing $430 million to refinance the existing revolver, said Mindy Tucker, corporate v.p. at Loews. She said the deal is expected to hit the market in February. Carmike is also planning to emerge later this month, though the banks providing exit financing could not be ascertained. Suzanne Brown, director for investor relations, said Carmike will emerge soon, but declined further comment. A banker noted that Regal's reception seems to bode well for other theatre credits, but he cautioned that investors will be looking closely. "Clearly the market is amenable to the sector," he said. But "all guys won't be treated similarly," and a combination of capitalization and ratings will decide whether the deals are hits or go straight to video.
The banker does expect the deals to go well, citing the stronger emergence from Chapter 11 for the companies, since the fundamentals have largely been addressed. But there are still issues to be dealt with, including the variable of audience attendance and the specific structures of deals. "Each of them [the cinema companies] cannibalized on each other. A classic case of overbuilding," said a banker. Tucker, noted the expansion causing this was built on debt-financed acquisitions, forcing the companies into Chapter 11. Steve Wilkinson, an analyst at Standard & Poor's commented, "They are definitely coming out stronger." He said the bankruptcy process has allowed the companies to reject previously non-cancelable leases and construction commitments, and close obsolete theatres. But he noted that more screens need to come offline and the very strong attendance of 2001 needs to hold up. Tucker agreed with the analysis, and said theatres for closing are being evaluated, but she is optimistic about the film pipeline. "Sequels to a number of very popular films are coming out this year, such as Star Wars, Harry Potter and Lord of the Rings," she said.
A banker familiar with the Regal situation said, "There has been a cleansing of the portfolios." The bank group received 100% with accrued interest on the old loans and the problems that forced Regal into Chapter 11 have been addressed, he said. The $370 million deal breaks down into a $100 million five-year revolver and a $270 million six-year term loan "B" priced at LIBOR plus 31/ 4% and LIBOR plus 4%, respectively. The deal was expected to fly as Regal has extremely low leverage, with senior secured debt less than 25% of the structure. Senior secured leverage is 1.25 times and total debt to EBIDTA is 2.6 times.