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S&P hits Regal debt rating, watches Loews

Underperforming pics not cause of woes, analyst sez

Bad news on debt ratings has rained on a pair of movie circuits following an earlier downpour on Carmike Cinemas.

On Friday, Regal Cinemas, a privately held Knoxville, Tenn.-based chain of 2,342 U.S. screens, was hit with a Standard & Poor’s ratings downgrade on its junk bonds to CCC+ from B- for subordinated debt and to B from B+ on corporate debt.

The same day, New York-based Loews Cineplex Entertainment, which operates 2,926 screens worldwide, got word S&P had placed its debt ratings under review with “negative implications.” Regal also had other unspecified ratings put on credit watch.

Bleak days

Those developments followed Wednesday’s move by Carmike creditors to block interest payments on its debt because of violations of loan covenants. That step was followed by an S&P downgrade of ratings on Carmike debt to a default grade of “D.” Earlier, Moody’s Investors Service had lowered debt ratings for Carmike, Loews Cineplex and AMC Entertainment.

Most major exhibition companies are suffering under high debt loads after a period of broad expansion in the industry, and many circuits have experienced liquidity pressures as revenue has failed to comfortably outpace debt-service needs. Analysts say there’s little hope for a turnaround barring major consolidation or more widespread closing of money-losing properties.

Ongoing trend

“It’s an ongoing trend,” said analyst Arthur Rockwell of Rockwell Capital Management in Los Angeles. “There’s got to be more restructuring of the industry and probably some debt restructuring.”

Rockwell added that exhibitors can’t complain that underperforming Hollywood movies are behind their woes. “There’s been a fair number of hits out there, so they can’t complain about a lack of product,” he said. “The answer still just comes to this: They’re overbuilt and overleveraged.”

The latest ratings moves came after the close of trading for the weekend.

Loews shares were unchanged Friday at $3.19. Shares in Carmike, which lost more than 50% after its interest payments were halted, closed up 13¢ at $2.

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