New York, April 10, 2014 -- Moody's Investors Service upgraded the rating on the $210 million
second lien bonds of Carmike Cinemas, Inc. (Carmike) to B1
from B2 and affirmed Carmike's B2 Corporate Family Rating (CFR)
and its SGL-1 Speculative Grade Liquidity Rating.
Moody's maintained the stable outlook, and a summary of today's
action follows.
Carmike Cinemas, Inc.
....Senior Secured 2nd Lien Bonds, Upgraded
to B1 (LGD3, 40%) from B2 (LGD3, 47%)
....Corporate Family Rating, Affirmed
B2
....Probability of Default Rating, Affirmed
B2-PD
....Speculative Grade Liquidity Rating,
Affirmed SGL-1
....Senior Secured Bank Credit Facility,
Affirmed Ba2 (LGD1, 05%)
....Outlook, Remains Stable
RATINGS RATIONALE
Since the April 2012 issuance of the second lien bonds, Carmike
expanded its asset base to 2,660 screens from 2,245 screens,
and revenue pro forma for a full year of acquisitions grew to about $700
million in 2013 from approximately $540 million in 2012.
Moody's believes that in a distress scenario, bondholders
could benefit from the junior capital provided by leases. This
lease cushion has risen with the growth of the company, so Moody's
considers the bondholders' position improved and upgraded the second
lien bonds rating to B1 from B2.
Moody's continues to consider Carmike's liquidity very good
and affirmed its SGL-1 rating. Carmike finished 2013 with
approximately $144 million of cash, ample relative to annual
cash interest expense of about $50 million and capital expenditures
of about $40 million.
High leverage (in the low 5 times debt-to-EBITDA range)
affords minimal flexibility to manage the inherent volatility of operating
in an industry reliant on movie studios for product to drive the attendance
that leads to cash flow from admissions and concessions. Carmike's
B2 CFR incorporates this risk, but very good liquidity mitigates
risk related to the attendance volatility and its expansion strategy.
The track record of positive free cash flow, which Moody's
expects to continue, also supports the rating. Lack of scale
and EBITDA margins below peers constrain the rating. However,
we attribute the lower EBITDA margins partially to the small to mid-size
markets Carmike targets, which have less competition from both other
theater operators and alternative entertainment options. Also,
despite some year to year variability related to film popularity and low-to-negative
attendance growth prospects, Moody's considers the theater industry
to be relatively stable over at least the next five years, with
typically only modest impact from economic conditions.
The stable outlook assumes Carmike will sustain leverage below 6 times
debt-to-EBITDA, with some volatility based on box
office performance, and will continue to generate positive free
cash flow. The outlook incorporates tolerance for modest acquisitions,
which we do not believe would materially impact leverage, but a
transformative acquisition leading to leverage sustained above 6 times
would likely warrant a negative rating action.
Leverage sustained above 6 times, whether due to debt funded acquisitions
or deteriorating performance, could result in a downgrade.
Inability to generate positive free cash flow on a sustained basis or
to maintain good liquidity would also likely have negative rating implications.
Equity oriented actions such as a dividend would not necessarily lead
to a negative rating action provided we expected continued positive free
cash flow.
The lack of scale and expectations that any significant improvement in
the operating profile would likely result in equity returns rather than
material improvement in the credit profile limit upward momentum.
However, we would consider a positive rating action with expectations
for leverage sustained below 5 times debt-to-EBITDA,
sustained free cash flow in excess of 5% of debt, and maintenance
of a good liquidity profile.
Carmike Cinemas, Inc.'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
Carmike Cinemas, Inc.'s core industry and believes
Carmike Cinemas, Inc.'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.
Headquartered in Columbus, Georgia, Carmike Cinemas,
Inc. operates 252 cinema theaters with 2,660 screens located
in 37 states, primarily in small to mid-sized communities.
Its annual revenue for 2013 was approximately $635 million and
approximately $700 million pro forma for a full year of its recent
acquisitions.
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.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
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 upgrades Carmike bonds to B1, affirms B2 CFR
