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Rating Action:

Moody's assigns B3 to Regal Entertainment senior unsecured bonds

29 May 2013

New York, May 29, 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 repay debt, including 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 Cinemas Corporation. Moody's also upgraded the first lien bank debt of Regal Cinemas Corporation to Ba1 from Ba2.

A summary of today's actions follows.

Regal Entertainment Group

....Senior Unsecured Bonds, Assigned B3 LGD5, 88%

....Corporate Family Rating, Affirmed B1

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

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

... Senior Unsecured Bonds, Affirmed B3, LGD adjusted to LGD5, 88% from LGD5, 89%

....Outlook, Remains Stable

Regal Cinemas Corporation

....Senior Secured Bank Credit Facility, Upgraded to Ba1 LGD2, 18% from Ba2, LGD2, 21%

....Senior Unsecured Bonds, Affirmed B2, LGD adjusted to LGD4, 61% from LGD4, 64%

....Outlook, Remains Stable

RATINGS RATIONALE

The proposed transaction favorably extends maturities and would likely lower annual interest expense, with no meaningful impact on leverage. Moody's estimates leverage at approximately 5.7 times debt-to-EBITDA pro forma for the acquisition of Hollywood Theaters (based on trailing twelve months through March 28 and incorporating Moody's adjustments for operating leases).

The upgrade of the first lien bank debt to Ba1 from Ba2 incorporates a gradual mix shift in Regal's liability structure. First lien bank debt now comprises a relatively smaller portion of the total liabilities as the company has paid down bank debt, increased unsecured bonds to fund acquisitions, and added incremental lease liabilities with the acquisitions.

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. Very 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 has been resilient throughout economic cycles and new entertainment technology introductions.

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'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 Entertainment Group's core industry and believes Regal Entertainment Group'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 this methodology.

Regal Entertainment Group, the parent of Regal Cinemas Corporation, operates 7,358 screens in 579 theatres in 42 states along with Guam, Saipan, American Samoa and the District of Columbia, 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 March 31 was approximately $2.8 billion. Attendance during that time period was approximately 212 million.

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 senior unsecured bonds
No Related Data.
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