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Rating Action:

MOODY'S ASSIGNS AMC ENTERTAINMENT BANK DEBT Ba3 RATING AND B3 RATING TO SR SUB NOTES; AFFIRMS ALL OTHER AMC RATINGS, OUTLOOK STABLE

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 debt.

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 matures 2013

- B3 Assigned to $325 million Senior Subordinated Notes due 2016

- 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- Rating Withdrawn: Ba3 $175 million Senior Secured Revolving Credit Facility matures 2009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 ratings.

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 concessions.

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 view.

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.

New York
Andris G. Kalnins
Senior Vice President
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Christina Padgett
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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