Dealing another blow to the reeling movie theater business, Moody’s Investors Service downgraded the credit ratings of Regal Cinemas, AMC, Loews Cineplex and Carmike Cinemas on Tuesday.
The rating of a fifth major exhib, Cinemark USA, was put under review for possible downgrade.
The downgrades to near-junk bond levels followed a lengthy review of the exhib biz and confirms what analysts and film execs have long maintained: Circuits are piling up too much debt to build too many screens.
Just too many
Many analysts believe about 10,000 of the roughly 38,000 U.S. movie screens need to be eliminated, but shedding screens can be costly.
“Debt is reaching eight or nine times cash flow, and that’s really scary,” said David Londoner, a Gotham-based analyst with Dutch investment bank ABN Amro.
Bonds issued by Loews, AMC, Carmike and Regal fell as much as five points after Moody’s lowered its ratings on $4.23 billion in debt owed.
Moody’s slashed its rating on Regal two notches to Caa1 from B2. Last October, it had been lowered from B1. Loews Cineplex 8.875% bonds went to Caa2 from B3, AMC’s 9.5% notes dipped to Caa3 from Caa1 and Carmike’s 9.375% notes fell to Caa2 from B2.
Numbed by numbers?
Shareholders of the publicly traded exhibs were perhaps too numb to panic, prompting only fractional price movement. Loews Cineplex shares fell 13¢ to $2.88, while AMC rose 6¢ to $5.38 and Carmike gained 31¢ to $5.38.
“The sentiment has already been accounted for by the marketplace,” said Mindy Tucker, a VP for investor relations at Loews. “This is really just more of the same. I think it’s reaching the end, but it could get a bit worse before it gets better.”