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Rating Action:

Moody's confirms Cineworld's B3 CFR; outlook is negative

29 Jun 2020

London, 29 June 2020 -- Moody's Investors Service, ("Moody's") has today confirmed Crown UK Holdco Limited's ("Cineworld" or "the group") corporate family rating (CFR) of B3 and the probability of default rating (PDR) of B3-PD. Concurrently, Moody's has confirmed at B3, the ratings of the outstanding USD3,314 million and the outstanding EUR192 million Senior Secured Term Loan B borrowed by Crown Finance US, Inc. and the USD573.3 million Senior Secured Revolving Credit Facility borrowed by Crown UK Holdco Limited.

Moody's decision to confirm Cineworld's ratings at B3 reflects the company's improved liquidity profile resulting from the (1) USD110.8 million of additional liquidity through an increase in its revolving credit facility (due 2023) secured in May 2020 and (2) the new USD250 million secured debt facility (due 2023) from private institutional investors secured on 22 June 2020. In addition, the company has sought a credit committee approval to apply for an additional USD45 million through the CLBILS loan scheme in the UK and is in the process of accessing a further USD25 million through the US government CARES Act.

The rating agency recognizes that Cineworld's lenders agreed to waive the leverage covenant in respect of its credit facility for the June 2020 testing date and has increased its leverage covenant to 9.0x Net Debt/ EBITDA for the December 2020 testing date (from 5.0x previously).

"In addition to improving its liquidity provision, Cineworld has also taken a number of cost saving actions to protect profitability and has recently cancelled the acquisition of Cineplex which will provide relief to its already weak credit metrics expected for 2020. However, uncertainty remains over potential litigation while the two parties blame each other over the failure of the deal and are potentially seeking damages" says Gunjan Dixit, a Moody's Vice President -- Senior Credit Officer and lead analyst for Cineworld.

This rating action concludes the review for downgrade on the ratings initiated on 24 March 2020.

A full list of affected ratings can be found at the end of this press release.

RATINGS RATIONALE

In 2020, Moody's expects the company's gross leverage (Moody's adjusted) to spike towards 9.0x (compared to 5.5x at the end of 2019) driven by the temporary closure of theatres over the past few months and Moody's expectation of reduced attendance, even after theatres re-open. While Cineworld is aiming to gradually open its theatres in the next couple of months , there is currently high degree of uncertainty in Moody's opinion. The rating agency has noted the recent postponement of the key films releases -- Tenet and Mulan that have been pushed to August from July.

Moody's positively recognizes the company's efforts to bring down its costs during the closure period. The company suspended the payment of its 2019 fourth quarter dividend and upcoming 2020 quarterly dividends, deferred some executive salaries and bonuses and has also negotiated the deferment of some rental payments to its landlords.

The rating agency notes the improvement in Cineworld's liquidity position following the recent actions taken. The company had ended 2019 with cash and cash equivalents of USD140.6 million and has had to increasingly rely on its revolving credit facility (RCF) during the closure period. At the end of May, the company upsized its RCF by USD110.8 million to USD573.3 million (maturing in February 2023) and has recently secured a new USD250 million secured debt facility through a group of institutional investors. Cineworld estimates that this additional liquidity should be sufficient in the unlikely event that cinema's are closed until the end of the year.

The RCF has a springing covenant, tested semi-annually once utilization exceeds 35%. Cineworld secured a waiver for its June 2020 covenant test and amended the December 2020 covenant test. The amended covenant is a maximum total net leverage of 9.0x in December 2020 from 5.0x initially, stepping down to 5.5x in June 2021.

Moody's additionally recognizes that the Regal dissenting shareholder legal case may result in an additional cash payment of USD202 million for Cineworld. While the court proceedings are continuing and have faced delays in the past, it remains unclear if the case will conclude in 2020. Moody's already includes this liability in its calculation of the company's leverage.

On 12 June 2020, Cineworld announced the termination of the acquisition of Cineplex (Canada's leading cinema chain) as the company become aware of certain breaches of the arrangement agreement by Cineplex. This USD2.3 billion 100% debt funded acquisition was announced in December 2019. While the cancellation of the acquisition is strategically negative for Cineworld, it provides relief for the company's credit metrics and liquidity requirements at a time of market stress.

The B3 ratings on the senior term loans and the RCF are in line with Cineworld's CFR, reflecting the fact that they account for most of the debt in the structure and are guaranteed by subsidiaries in the restricted group which accounted for the approximately 88% of 2019 revenues and EBITDA. The 50% family recovery rate is our standard assumption for covenant-loose loan transactions. Consequently, the B3-PD probability of default rating is also in line with the CFR.

ESG CONSIDERATIONS

The rapid spread of the coronavirus outbreak, deteriorating global economic outlook, low oil prices, and high asset price volatility are creating an unprecedented credit shock across a range of sectors, regions and markets. Moody's regards the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety. Today's action reflects the impact on Cineworld of the breadth and severity of the shock, and the broad deterioration in credit quality it has triggered.

NEGATIVE OUTLOOK

Negative outlook on the ratings reflects the uncertainty around attendance levels for theatres even after service resumption in July 2020 and the risk of any subsequent lockdown measures.

Stabilisation of the outlook would require (1) cinemas to reopen and function normally from July 2020 (2) attendance to cinema theatres to see a material improvement particularly on the back of a strong film slate in 2021; and (3) a recovery in company's credit metrics together with a comfortable liquidity profile.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Upward pressure may arise if (1) Cineworld's operating profitability improves steadily in 2021, (2) its Moody's adjusted gross leverage improves to below 6.5x on a sustained basis largely driven by EBITDA growth or debt reduction and (3) Cineworld delivers positive and improved free cash flow.

Downward pressure may arise should there be (1) an indication of further closures of cinemas in H2 2020 or beyond (2) limited prospects of recovery of the company's operating performance in 2021; or (3) the company's gross debt/ EBITDA remaining above 7.5x for a sustained period or the company's free cash flow turns materially negative on a sustained basis.

LIST OF AFFECTED RATINGS

Confirmations:

..Issuer: Crown UK Holdco Limited

....Corporate Family Rating, Confirmed at B3 previously placed on review for downgrade

....Probability of Default Rating, Confirmed at B3-PD previously placed on review for downgrade

....BACKED Senior Secured Bank Credit Facility, Confirmed at B3 previously placed on review for downgrade

..Issuer: 1232743 B.C. Ltd.

....BACKED Senior Secured Bank Credit Facility, Confirmed at B3 previously placed on review for downgrade

..Issuer: Crown Finance US, Inc.

....BACKED Senior Secured Bank Credit Facility, Confirmed at B3 previously placed on review for downgrade

Outlook Actions:

..Issuer: 1232743 B.C. Ltd.

....Outlook, changed to Negative from Rating Under Review

..Issuer: Crown Finance US, Inc.

....Outlook, changed to Negative from Rating Under Review

..Issuer: Crown UK Holdco Limited

....Outlook, changed to Negative from Rating Under Review

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Business and Consumer Service Industry published in October 2016 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1037985. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Cineworld Group plc was founded in 1995 and listed its shares on the London Stock Exchange in May 2007. The Company has grown through expansion and by acquisition to become one of the leading cinema groups in Europe. Cineworld currently operates 9,518 screens across 790 sites in the US, UK and Ireland, Poland, the Czech Republic, Slovakia, Hungary, Bulgaria, Romania and Israel.

The largest shareholder in Cineworld is Global City Holdings B.V., a Greidinger Family holding vehicle, which holds approximately 20% of the quoted equity. During 2019, the company generated revenues of USD4.3 billion and a reported 'adjusted' EBITDA of around USD1.0 billion.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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 credit rating action on the support provider and in relation to each particular credit 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 credit rating action, and whose ratings may change as a result of this credit 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.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

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.

Gunjan Dixit
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Peter Firth
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
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