Redstone’s Cinemas May Be Downgraded by S&P as Sales Sag

Sumner Redstone’s National Amusements Inc. cinema chain faces a possible downgrade of its debt due to declining box-office receipts at its theaters.

Standard & Poor’s Ratings Services changed its outlook on $385 million in debt to negative from stable and may lower the rating from B+, according to a statement yesterday. Redstone could sell some of the $5.1 billion in CBS Corp. and Viacom Inc. stock the company owns to ensure continued strong liquidity, S&P said.

National Amusements, based in Norwood, Massachusetts, is owned by Redstone family trusts and led by Redstone’s daughter Shari, its president. The business has underperformed peers in terms of revenue, said Jeanne Shoesmith, an analyst at Standard & Poor’s, leaving the business dependent on dividends from CBS and Viacom to counter shrinking theater earnings.

“The company relies on dividends from its holdings in CBS and Viacom stock to fund interest and capital spending, combined,” Shoesmith said. “Without the dividend income, discretionary cash flow would be negative.”

Rebecca Stein, a spokeswoman for National Amusements, declined to comment.

The B+ rating is below investment grade.

Three Generations

National Amusements is the eighth-largest U.S. cinema chain with 423 screens, according to the National Association of Theatre Owners. The chain has been led by three generations of the Redstone family, according the company’s website.

Redstone, 91, holds voting shares in Viacom and CBS that give him controlling stakes in the two companies. His economic interests in those two companies amount to 9.1 percent and 6.6 percent, respectively, S&P said.

National Amusements, which operates under the Showcase and Multiplex Cinemas names in the U.S., has been underperforming peers in its markets, according to the analyst. One factor may be AMC Entertainment Holdings Inc.’s investment in new seats and other customer amenities, she said.

The company will generate $55 million to $65 million in funds from operations next year, including dividends, S&P said. Capital spending will be about $45 million.

Year to date, U.S. box office receipts are down 4.8 percent to $7.88 billion, according to the market researcher Rentrak Corp. The decline reflects a summer lacking last year’s level of blockbuster releases.

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