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Related Issuers
Rating Action:

Moody's confirms Carmike's CFR at B2; outlook stable

25 Sep 2015

New York, September 25, 2015 -- Moody's Investors Service confirmed the Corporate Family Rating (CFR) and Probability of Default Rating (PDR) of Carmike Cinemas, Inc. (Carmike) at B2 and B2-PD, respectively. Concurrently, Moody's confirmed the Ba2 rating on the senior secured credit facilities and B1 rating on the senior secured second lien notes. The rating outlook is stable.

These actions conclude the review for upgrade initiated on June 16, 2015 upon the adoption of Moody's updated approach for standard adjustments for operating leases, which is explained in the cross-sector rating methodology Financial Statement Adjustments in the Analysis of Non-Financial Corporations, published on June 15, 2015. The confirmation reflects our view that the credit risk for Carmike remains unchanged.

A summary of today's actions follow:

..Issuer: Carmike Cinemas, Inc.

Confirmations:

.... Corporate Family Rating, Confirmed at B2

.... Probability of Default Rating, Confirmed at B2-PD

....Senior Secured 1st Lien Rev Credit Facility due 2020, Confirmed at Ba2, (LGD1)

....Senior Secured 2nd Lien Notes due 2023, Confirmed at B1, (LGD3)

Affirmations:

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

Outlook Actions:

....Outlook, Changed To Stable From Rating Under Review

RATINGS RATIONALE

Carmike's B2 corporate family rating incorporates the company's smaller market share and higher leverage relative to its peers, as well as a liberal use of operating cash flow and the constraints imposed by a mature industry experiencing a secular decline in attendance. Additionally, the company is challenged by a dependence on a limited number of movie studios, an unpredictable box office result, and emerging competitive threats. Despite these challenges, the company is the one of the largest operators in the US with 4% North American market share that -- although significantly trailing its three larger peers - remained steady over the last five years. The company benefits from barriers to entry into the first-run window for theatrical distribution, pricing power, high margins, and good liquidity.

Despite prior challenges experienced during early 2000 when the sector overbuilt and several major operators including Carmike filed for bankruptcy, the industry can be and is a durable business when capital structures are reasonable and capital is allocated at a rational pace for expansion and other uses. Since its founding in 1982, the company has grown in size and scale through multiple recessions, variability in the movie slate, and technological advances, proving the business model can be resilient. Today, Carmike's leverage is elevated at 5.3x (Moody's adjusted at June 30, 2015) and has used a healthy 40% allocation of its funds from operations (as reported) to grow through acquisition during the last five years.

In addition, the company is significantly smaller than the industry leaders, and this relative lack of scale limits purchasing power with concession and other vendors, as well as negotiating leverage with the studios. Carmike's reliance on fewer theaters relative to rated peers exposes it to potential erosion in key markets, while its lower audience base constrains potential advertising revenue. Lack of scale in general provides less flexibility to absorb one time legal and financing costs and could reduce the company's ability to access the capital markets, especially in times of market stress.

Carmike's liquidity is very good, as defined by its SGL-1 speculative grade liquidity rating. Our view is supported by strong cash flows, a substantial cash balance, a moderately sized revolver, and the value of the company's alternative sources of capital. Carmike also benefits from a long dated capital structure, with no meaningful maturities until 2023 when its notes come due.

The stable outlook reflects our expectation the company will generate positive free cash flow (after dividends), as well as leverage sustained below 5.75 times (Moody's adjusted debt/EBITDA). Given the maturity of the industry, limited opportunities for growth, and the secular decline in attendance driven by the rise in competitive threats, an upgrade is unlikely. The company would need to substantially improve its market position, competitive defenses, and demonstrate sustained debt-to-EBITDA below 4.5x, and free cash to debt sustained in excess of 5%.

A downgrade could result from sustained negative free cash flow, debt-to-EBITDA sustained above 5.75x, or a weakening of the business model or strategic position of the company.

The principal methodology used in these ratings was Business and Consumer Service Industry published in December 2014. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

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.

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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.

Jason Cuomo
Vice President - Senior 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 confirms Carmike's CFR at B2; outlook stable
No Related Data.
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