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Rating Action:

Moody's assigns B3 to Regal Entertainment Group bonds, affirms B1 CFR

14 Jan 2013

New York, January 14, 2013 -- Moody's Investors Service assigned a B3 rating to the proposed senior unsecured notes of Regal Entertainment Group (Regal) and affirmed its B1 corporate family rating. The company expects to use proceeds to fund acquisitions or to repay debt, which could include a tender for Regal's 9.125% senior unsecured bonds due August 2018 and the 8.625% senior unsecured bonds due 2019 of its operating subsidiary Regal Cinema Corporation.

Absent acquisitions, Moody's expects a slight increase (less than $50 million) in gross debt pro forma for the transactions given the necessary premium to execute the tenders, but no meaningful change in leverage. If Regal uses the proceeds to fund acquisitions, leverage could increase modestly on a pro forma basis, but given the probable multiples paid, acquisitions are unlikely to materially weaken credit metrics.

Moody's estimates leverage of about 5.6 times debt-to-EBITDA for the trailing twelve months ended September 30, although leverage would be about one-quarter turn lower with the benefit of a strong fourth quarter and pro forma for the acquisition of theaters in December.

Moody's also affirmed Regal's SGL-1 speculative grade liquidity rating and continues to consider its short term liquidity "very good," even though the $91 million acquisition and approximately $155 million special dividend in December consumed a substantial portion of the cash balance. Moody's estimates balance sheet cash at around $100 million as of year end 2012. This balance sheet cash, along with the undrawn $85 million revolver and the saleable stake in National CineMedia, Inc. supports the liquidity profile.

A summary of today's action follows.

Regal Entertainment Group

....Senior unsecured bonds, Assigned B3, LGD5, 89%

....Corporate Family Rating, Affirmed B1

....Probability of Default Rating, Affirmed B1-PD

....Speculative Grade Liquidity Rating, Affirmed SGL-1

....9 1/8% Sr Unsec Notes due 2018, Affirmed B3, LGD adjusted to LGD5, 89% from LGD6, 91%

Outlook, Stable

Regal Cinemas Corporation

....Senior Secured Credit Facility, Affirmed Ba2, LGD2, 21%

....8 5/8% Sr Unsec due 2019, Affirmed B2, LGD adjusted to LGD4, 64%, from LGD4, 68%

Outlook, Stable

RATINGS RATIONALE

Moody's expects Regal's leverage to remain in the mid 5 times debt-to-EBITDA range given weak industry growth trends and management's propensity to allocate excess cash to shareholders rather than debt reduction. This weak credit profile drives the B1 CFR. The high leverage also poses challenge for operating in an inherently volatile industry reliant on movie studios for product to drive the attendance that leads to cash flow from admissions and concessions, although good short term liquidity enables the company to better manage the attendance related volatility. Scale and geographic diversification also support the rating. Moody's considers theatrical exhibition a mature industry with low-to-negative growth potential, high fixed costs and increasing competition from alternative media, and anticipates attendance growth will continue to lag behind population growth over the long term, with year to year volatility driven by the popularity of the films. However, the industry remains viable and stable throughout economic cycles.

The stable outlook incorporates expectations for modestly positive free cash flow, leverage in the mid 5 times debt-to-EBITDA range, and maintenance of good liquidity.

Upward ratings momentum is highly unlikely given the aggressive fiscal policy, the weak credit metrics, and expectations for continued poor industry growth trends. However, Moody's could consider a positive ratings action with evidence of commitment to improving the credit profile such that we anticipate leverage sustained below 5 times debt-to-EBITDA and free cash to debt in excess of 5%.

Sustained negative free cash flow or leverage above 5.75 times debt-to-EBITDA, whether due to worsening fundamentals, debt funded acquisitions, or shareholder returns could pressure the rating downward. Deterioration of the liquidity profile could also have negative ratings implications.

Regal Entertainment Group, the parent of Regal Cinemas Corporation, operates approximately 6,900 screens in 550 theatres in 38 states and the District of Columbia (pro forma for the acquisition of theaters from Great Escape in December), primarily in mid-sized metropolitan markets and suburban growth areas of larger metropolitan markets throughout the U.S. The company maintains its headquarters in Knoxville, Tennessee, and its revenue for the twelve months ended September was approximately $2.7 billion.

Regal's ratings were assigned by evaluating factors that Moody's considers relevant to the credit profile of the issuer, such as the company's (i) business risk and competitive position compared with others within the industry; (ii) capital structure and financial risk; (iii) projected performance over the near to intermediate term; and (iv) management's track record and tolerance for risk. Moody's compared these attributes against other issuers both within and outside Regal's core industry and believes Regal's ratings are comparable to those of other issuers with similar credit risk. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Karen Berckmann
Asst Vice President - Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

John Diaz
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's assigns B3 to Regal Entertainment Group bonds, affirms B1 CFR
No Related Data.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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