Reorg would give Anschultz control of 20% of U.S. theaters
The clock is finally ticking on Regal Cinemas’ long march into bankruptcy court: Management endorsed a $1.25 billion reorg proposal Thursday that would give financier Philip Anschutz control of the nation’s biggest circuit and unprecedented sway over U.S. exhibition.
The prepackaged bankruptcy plan is being shopped to unsecured creditors — the only group of Regal lenders not already controlled by Anschutz — and a Chapter 11 filing is expected within 45 days, execs said. Terms call for Anschutz and partners, including L.A. buyout firm Oaktree Capital, to put up about $455 million in cash to cover bank loans, bond securities and unsecured debt.
The plan being advanced means Anschutz soon could control more than 6,000 U.S. screens after getting Regal’s 3,898. The Knoxville, Tenn.-based circuit once controlled upward of 4,300 screens but like most exhibs has been closing smaller, money-losing properties.
Anschutz already owns United Artists Theatres and has nearly finalized a proposal to take control of Edwards Theatres. Those circuits rep operations with combined screens totaling more than 2,200. Adding Regal’s vast circuit to the mix would give Anschutz control over almost one-fifth of all U.S. screens.
Betting that exhibition will rebound from its current financial crisis woes, the Anschutz-led group agreed to take equity for most of the Regal bank debt the partners gobbled up over the past several months. As a result, the group would acquire virtually all of the privately held company — with Anschutz getting a 60% stake, Oaktree 15%, and the Greenwich, Putnam and Tudor investment firms splitting the balance of equity.
Such a reorg would see current owners Hicks, Muse, Tate & Furst and Kohlberg Kravis Roberts taking a $1 billion bath. The Dallas-based buyout firms each invested $500 million in jointly acquiring Regal in 1998 and then accrued well north of $1 billion in additional debt to operate the circuit.
Over the past several months, the Anschutz group has bought over 80% of Regal’s bank debt. In the restructuring, some $200 million would go toward paying down that debt before converting the remainder to equity.
Bondholders would recover about 20¢ on the dollar in a roughly $180 million component of the proposed restructuring. Anschutz and partners now hold 93% of such debt.
Another $75 million pool would be created to cover claims of unsecured creditors such as landlords and trade accounts. This is the sole group of creditors the Anschutz group doesn’t control and thus will be courting over the next few weeks.
The Anschutz group is optimistic about convincing the unsecured group of its plan, and a prepackaged Chapter 11 filing is expected by mid-October. The developments arise after a period of several months in which Hicks Muse and KKR have sought in vain some way of salvaging their Regal investment.
An alternate scenario would have seen current owners file for bankruptcy reorg to advance their own plan for bolstering the cash-strapped circuit. Or, faced with resistance by current management, Anschutz might have forced an involuntary Chapter 11 filing to trigger a bankruptcy reorg.
Though some suggest that adding Regal’s theaters could lead to the reclusive billionaire’s gaining an upper hand on tough-dealing film distribs in film-rental negotiations, others are skeptical that any such clout will emerge.
Indeed, Hicks Muse and KKR were once quite vocal about wanting to improve Regal’s ability to negotiate favorable films terms. But the circuit owners were never able to turn screen mass into negotiating might.
One problem involves Regal’s relatively weak strategic positioning. A youngish circuit founded in 1989, Regal is often knocked for operating too many theaters in undesirable locations.
As one distrib wag recently waxed: “Big deal. They operate almost 4,000 screens — you just can’t find any of them.”
The movie chain’s reach is nationwide, however, and is particularly strong in the Southeast and Northwest.
Team Anschutz has taken pains to signal its intent to keep Regal chairman and CEO Michael Campbell, as the circuit topper is key to its efforts to arrange a prepackaged Regal restructuring. But skeptics wonder how long-term that commitment will be.
Critics cite failures of Regal brass including a recent showdown with New Line over terms for its summer blockbuster “Rush Hour 2.” Regal’s stance caused the circuit to miss out on the season’s second-biggest hit after DreamWorks’ “Shrek.”
“(W)e concluded that a consensual prepackaged reorganization under Chapter 11 presents the most effective means to restructure the company’s debt, strengthen its capital structure and position Regal to compete effectively,” Campbell said in a statement.
The circuit topper noted unsecured creditors are expected to recoup close to 100% of what’s owed them. “This should assure uninterrupted service of our operations, while also allowing us to maintain our very valuable vendor relationships,” he added.
A majority of creditors representing two-thirds of Regal’s debt must approve the plan by an Oct. 5 deadline. Actual bankruptcy proceedings would take two to three months once a reorg petition is filed.
A Chapter 11 filing by Regal would bring to an even dozen the number of U.S. exhibs entering bankruptcy proceedings over the past year. An industrywide megaplex building binge of a few years back prompted crushing competish among the various circuits, with exhibs unable to meet debt terms and seeking court protection and permission to shutter money-losing properties.