Fitch: Regal's Ratings Unaffected by Special Dividend and Acquisition
NEW YORK -- November 30, 2012
Fitch's ratings of Regal Entertainment Group (Regal) and Regal Cinemas
Corporation (Regal Cinemas) are unaffected by Regal's announcement of a $1 per
share special dividend and the acquisition of the Great Escape theater
circuit. A complete list of Fitch's ratings on Regal and Regal Cinemas is
Regal announced that it is declaring a special cash dividend of $1 per share
of class A and B common stock, which totals approximately $155 million and is
payable on Dec. 27, 2011. Further, Regal announced the acquisition of Great
Escape theater circuit, totaling 25 theaters and 301 screens, for a purchase
price of $91 million. Regal disclosed a pre-synergy multiple of 5.5 times (x),
which is consistent with recent theater acquisition activity. Fitch estimates
AMC Entertainment's acquisition of Kerasotes Showplace at approximately 5.3x.
The special dividend and acquisition is consistent with Fitch's expectation
for Regal's cash deployment. However, while not anticipated, a debt-financed
material acquisition or return of capital to shareholders that would raise the
unadjusted gross leverage beyond 4.5x could have a negative impact on the
As of Sept. 30, 2012 Regal had approximately $2 billion in debt, with and
lease-adjusted gross leverage at 4.8x and unadjusted gross leverage at 4.1x.
As of Sept. 30, 2012, liquidity was made up of $251 million in cash and $82
million in credit facility availability (reduced by $3 million in letters of
credit), under the company's $85 million revolving credit facility due May
2015. Fitch expects the special dividend will be funded with existing
liquidity. While, pro forma September 2012 cash balance would be low post the
special dividend and acquisition, approximately $5 million, the fourth quarter
is typically a strong cash generating quarter. Fitch expects year end
liquidity to be adequate, with cash balances in excess of $50 million and an
undrawn credit facility. Fitch calculates September 2012 last 12 month FCF
(after dividends) of $90 million.
The ratings continue to reflect the following key considerations:
--Fitch believes movie exhibition will continue to be a key promotion window
for the movie studios biggest/most profitable releases.
--Solid box office performance, with 2012 box office revenues up 5.8% as of
Nov. 28, according to Box Office Mojo. Fitch expects the remaining 2012 film
slate, including the upcoming Hobbit film, to continue to support the year's
--Long-term, Fitch continues to expect that the movie exhibitor industry will
be challenged in growing attendance and any potential attendance declines will
offset some of the growth in average ticket prices.
--The ratings also incorporate the intermediate/long-term risks associated
with increased competition from at-home entertainment media, limited control
over revenue trends, the pressure on film distribution windows, increasing
indirect competition from other distribution channels (such as DVD, VOD, and
the Internet), and high operating leverage (which could make theater operators
FCF negative during periods of reduced attendance). In addition, RGC and its
peers rely on the quality, quantity, and timing of movie product, all factors
out of management's control.
Fitch currently rates Regal and Regal Cinemas as follows:
--Issuer Default Rating (IDR) 'B+';
--Senior unsecured notes 'B-/RR6'.
--Senior secured credit facility 'BB+/RR1';
--Senior unsecured notes 'BB/RR2'.
The Rating Outlook is Stable.
Additional information is available www.fitchratings.com. The issuer did not
participate in the rating process, or provide additional information, beyond
the issuer's available public disclosure.
Applicable Criteria & Related Research:
--'Corporate Rating Methodology' (Aug. 8, 2012).
Applicable Criteria and Related Research:
Corporate Rating Methodology
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Rolando Larrondo, +1-212-908-9189
One State Street Plaza
New York, NY 10004
Shawn Gannon, +1-212-908-0223
Brian Bertsch, +1-212-908-0549
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