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04 Jan 2006
MOODY'S ASSIGNS AMC ENTERTAINMENT BANK DEBT Ba3 RATING AND B3 RATING TO SR SUB NOTES; AFFIRMS ALL OTHER AMC RATINGS, OUTLOOK STABLE
Approximately $2.5 billion in debt securities affected
New York, January 04, 2006 -- Moody's Investors Service assigned a Ba3 rating to the proposed
bank facilities of AMC Entertainment, Inc. (AMC) and a B3
rating to AMC's proposed senior subordinated notes issuance.
AMC expects to close on its previously announced merger with Loews Cineplex
Entertainment Corporation (Loews Cineplex) in the beginning of this year
and will use proceeds from the bank credit facilities to repay existing
bank debt at Loews Cineplex, as well as to provide liquidity for
the combined entity. The senior subordinated notes issuance represents
a refinancing of senior subordinated notes at Loews Cineplex. Moody's
also affirmed all other AMC and Marquee Holdings, Inc. (parent
company of AMC) ratings. Moody's withdrew ratings on existing AMC
bank facilities and plans to withdraw the Loews Cineplex ratings upon
the completion of the merger and the repayment of existing Loews Cineplex
The B1 corporate family rating reflects high financial risk, sensitivity
to product from movie studios, and a weak industry growth profile,
offset by the advantages of scale, expected benefits from synergies
following the combination, and strong liquidity. Moody's
also changed the rating outlook to stable from negative. Due to
expectations for meaningful synergy benefits and AMC's strong liquidity
profile, a downgrade over the next 18 months is less likely.
A summary of today's actions follows.
AMC Entertainment, Inc.
- Ba3 Assigned to $200 million Senior Secured Revolving
Credit Facility matures 2012
- Ba3 Assigned to $650 million Senior Secured Term Loan
- B3 Assigned to $325 million Senior Subordinated Notes
- B2 rating on $205 million senior (floating rate) notes
due 2010 affirmed
- B2 rating on $250 million 8.625% senior
notes due 2012 affirmed
- B3 rating on $215 million 9.5% senior subordinated
notes due 2011 affirmed
- B3 rating on $175 million 9.875% senior
subordinated notes due 2012 affirmed
- B3 rating on $300 million 8% senior subordinated
notes due 2014 affirmed
- Rating Withdrawn: Ba3 $175 million Senior Secured
Revolving Credit Facility matures 2009
Outlook, Changed to Stable from Negative
Marquee Holdings, Inc.
- B1 Corporate Family Rating affirmed
- Caa1 rating on Senior Discount Notes due 2014 ($304 million
face value) affirmed
Ratings reflect AMC's financial risk, including high leverage
of approximately 8 times (as per Moody's financial metrics,
adjusted for operating leases and including the discount notes at the
holding company), thin interest and fixed charge coverage,
and modest free cash flow. Furthermore, like all theater
operators, AMC remains vulnerable to the quality and availability
of film and faces at best minimal growth potential. Scale and geographic
diversity, expected merger-related cost savings and revenue
benefits, and strong liquidity, however, support the
Moody's anticipates leverage of the combined entity immediately
pro forma the transaction will be high at approximately 8 times and interest
coverage weak at slightly under 2 times. Initial merger costs and
the time required to implement synergies will likely inhibit generation
of free cash flow and reduction in leverage over the near term.
Furthermore, like all theater operators, AMC operates in a
mature industry with low to negative growth potential, high fixed
costs (AMC's fewer owned theaters relative to its peer group exacerbates
this challenge) and increasing competition from alternative media.
The company also remains vulnerable to the studios to create product that
will drive the attendance that leads to cash flow from admissions and
AMC benefits, however, from geographic diversity and the increased
scale of the combined company, which creates greater volume purchasing
benefits and enhances potential upside from advertising revenue.
Moody's believes the combined company will also achieve cost savings
due to reduced corporate overhead and payroll. Strong liquidity,
including a $200 million undrawn revolving credit facility,
balance sheet cash in the $200 million range, no meaningful
debt maturities prior to 2011 and covenant flexibility further supports
the rating. Finally, Moody's considers AMC's
29% ownership in National CineMedia, its wholly owned Cinemex
subsidiary and its ownership stake in international joint ventures to
be valuable assets. The growing value of the National CineMedia
joint venture will provide some incremental, high margin EBITDA
to help offset industry maturity and attendance volatility, in Moody's
The stable outlook incorporates expectations for a decline in leverage
to the 7 times range for the fiscal year ending March 2007 as EBITDA rises
with the realization of merger benefits and modest improvements in operating
trends. The rating remains weakly positioned due to current leverage,
which Moody's views as unsustainable, but the strong liquidity
profile significantly reduces the risk of default and Moody's considers
a downgrade over the next 18 months less likely. Inability to achieve
projected synergies or weaker operating trends could result in a reversion
to a negative outlook or pressure the ratings down. Upward rating
momentum is highly unlikely over the near to intermediate term given the
low probability of AMC reducing leverage enough to support a higher rating
(likely in the 6 times range or below).
Moody's views AMC leverage of approximately 8 times (including the
discount notes at the holding company and adjusted for operating leases)
as unsustainable but expects leverage will decline to the 7 times range
for its fiscal year ending March 31, 2007, with the realization
of merger related synergies and modest improvements in attendance trends
and in the quality of its theater circuit. Furthermore, in
Moody's view, lenders benefit from the significant amount
of operating leases, which comprise approximately 60% of
total debt and would likely absorb some loss in a distress scenario.
AMC also benefits from substantial liquidity, with balance sheet
cash in the $200 million range pro forma for the transaction and
receipt of cash proceeds from the sale of Loews Cineplex's ownership
in a South Korean joint venture. In addition to the balance sheet
cash, the undrawn $200 million revolving credit facility,
the absence of meaningful debt maturities prior to 2011, and strong
projected covenant cushion further enhance liquidity and substantially
diminish the risk of default, in Moody's view. Interest
coverage in the two times range is moderate. Fixed charge coverage
as measured by EBITDA less capital expenditures-to-interest
expense in the low 1 times range is weaker, but in Moody's
view the strong liquidity somewhat mitigates this low ratio. Furthermore,
some of the capital expenditures could likely be delayed if necessary.
Moody's notches the bank debt, which comprises approximately
15% of total debt (including capitalized operating leases),
up to Ba3 from the B1 corporate family rating. Moody's believes
that in a restructuring scenario, operating leases would be more
vulnerable to impairment than the bank debt. The B2 rated senior
notes and the B3 rated senior subordinated notes at the operating company
constitute the bulk of the balance sheet debt (approximately 55%)
and about 20% of total debt (including capitalized operating leases)
and are effectively and contractually subordinated to the bank debt.
The Caa1 rating on the bonds at the holding company Marquee Holdings,
Inc. reflects the equity like risk of this instrument, which
would likely absorb the majority of the loss in a distress scenario,
in Moody's view.
Pro forma annual revenue of the combined entity for fiscal year ended
March 31, 2005, is approximately $2.6 billion.
AMC Entertainment is one of the largest movie theater exhibition companies
in the United States, with about 3,500 screens in 225 theaters
located mostly in the United States, and a smaller presence in several
international markets. The company maintains its headquarters in
Kansas City, Missouri. Loews Cineplex Entertainment is one
of the largest cinema operators with about 2,200 screens in about
200 theaters operating primarily in the largest domestic urban and high-density
suburban markets. The company also has a strong market presence
in Mexico through its wholly-owned subsidiary Cinemex, and
in Spain through a joint venture. The company maintains its headquarters
in New York, New York.
Andris G. Kalnins
Senior Vice President
Corporate Finance Group
Moody's Investors Service
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
No Related Data.
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