NEW YORK — Standard & Poor’s cut its rating on Cineplex Odeon Corp.’s debt Thursday from BB- to B+, citing profit and cash flow levels “below Standard & Poor’s expectations” the past two years.
But S&P’s review was based on Cineplex’s earnings for the nine months to Sept. 30, a period that included the Olympic Games, which depressed moviegoing generally, and Cineplex execs insisted that it didn’t reflect the ex-hibitor’s potential for this year.
Nevertheless S&P’s review indicated that the exhib, which raised $83 million in new equity last year to fund a re-building program for its aging circuit, is under continuing pressure from Wall Street.Cineplex’s cash flow, earn-ings before interest, taxes, depreciation and amortization, rose 1.5% to $41 million in the nine months ended Sept. 30, although cash flow dropped 32% in the September quarter itself. But Cineplex chief financial officer Ellis Ja-cob said that not only did the Olympics depress the performance in this period but other exhibitors had opened some of their new multiplexes in that period, whereas Cineplex began its rebuilding program later.
Cineplex bowed 90 screens in December in major U.S. and Canadian cities. S&P noted that “promising films from Cineplex’s key distributors should somewhat improve key credit measures in 1997,” but said the performance this year would be in line with the lower credit rating.
Ominously, S&P noted that the higher levels of cash flow this year “will be crucial to funding expansion and moderating the need for borrowing,” and it warned that a “disappointing” performance this year would likely prompt a further review of the credit rating.