Latest Chapter 11: UA

With $752.3 mil in debt, exhib joins competish

The United Artists chain, continuing the blood bath in the exhibition sector, has filed for Chapter 11 federal bankruptcy protection.

UA, the nation’s sixth largest chain with 225 theaters, declared that the filing will enable it to continue operations and eventually return to profitability.

The prepackaged filing in U.S. Bankruptcy Court in Wilmington, Del., listed $16.8 million in assets and $752.3 million in debts for parent United Artists Theatre Circuit Inc. It includes a debt-restructuring plan that will transfer 55% of new UA shares to Denver billionaire Philip Anschutz in exchange for his claims.

The filing had been in the works for several weeks with Anschutz widely expected to take control (Daily Variety, Aug. 29).

It was the third major movie-house chain to file for Chapter 11 in recent weeks following Carmike Cinemas and Edwards Theaters as the industry struggles with the twin burdens of debt from frantic megaplex expansion and declining business at older theaters. The Regal chain has indicated it was considering a similar step.

“This is a unique situation where an entire industry is going bankrupt,” noted entertainment analyst Barry Hyman of Weatherly Securities Corp. “The chains have fallen in love with the idea that entertainment has to be part of a whole package and that megaplexes were the only way to go. So it raises questions about the long-term viability of the exhibition industry.”

UA, of Englewood, Colo., said Anschutz will provide $25 million debtor-in-possession financing and noted that studios, other business partners and creditors have been helpful and supportive during negotiations to work out a debt restructuring.

Cost-cutting failed

UA topper Kurt Hall admitted Tuesday that his cost-cutting plan had failed. “While our efforts to reduce and focus capital spending exclusively in our key markets, manage our business in a more prudent manner and dispose of underperforming theaters has resulted in improvements in our operating margins, these improvements have not been sufficient to mitigate the impact of the unprecedented level of investment and predatory over-screening that has occurred in our industry over the past three years,” he said.

Hall said the industry’s 26% gain in screens since 1996 has outpaced growth from admission revenues and has not justified the higher cost of construction and over-expansion.

Hall said if the reorganization plan is confirmed, debt will be cut to $260 million and annual interest expense will decline from over $75 million to $27 million. That will allow UA to internally fund reinvestment in key locations and rebuild lost market share and cash flow, he added.

Analysts say UA’s problems have been exacerbated because of the $500 million in debt it took on in 1992 as part of a leveraged buyout led by Merrill Lynch Capital Partners. Anschutz bought UA’s bank loans earlier this year after it missed an interest payment.

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