In a deal that drives yet another nail in the well-sealed coffin of Regal Cinemas’ current ownership, a group led by financier Philip Anschutz has bought up almost all the subordinated debt of America’s biggest movie chain — carrying a roughly $425 million face value — at about 20¢ on the dollar.
The move, completed late last week and revealed by various sources Monday, follows the earlier acquisition of a majority portion of the Knoxville, Tenn.-based circuit’s bank debt. It also comes in the wake of Anschutz’s previous takeover of United Artists Theaters and more recently an agreement to acquire a majority interest in Edwards Theaters (Daily Variety, May 25).
Together, the developments seem to leave current owners Krohlberg Kravis Roberts and Hicks, Muse, Tate & Furst with no choice but to allow the chain to enter a Chapter 11 bankruptcy reorg, likely within a couple weeks. That would effectively guarantee the two investment firms a combined loss of about $1 billion, the price they paid to acquire Regal in 1998.
It’s expected that a bankruptcy reorg would take a portion of the debt now held by Anschutz and investment partner Oaktree Capital and turn it into Regal equity. It’s also likely such proceedings would leave KKR and Hicks, Muse with nada.
The investment firms have kept Regal management from filing for bankruptcy reorg so far — despite the apparent lack of options and a well-documented cash crunch at the circuit — through their control of the exhib’s board. But management appears poised to embrace the Anschutz group as owners.
“We are aware that the Anschutz and Oaktree investment groups have purchased a majority share of Regal’s bonds, and we view this as a positive step in our restructuring efforts,” a Regal spokesman said Monday.
Asked whether a bankruptcy reorg is around the corner, he added, “We’re continuing to evaluate various restructuring alternatives.”
The Anschutz-Oaktree group now controls about 95% of Regal’s subordinated debt and 65% of its bank debt.
Nevertheless, even if Regal files for Chapter 11 proceedings, the KKR-Hicks, Muse regime will have upward of 90 days afterward to file its own reorg scheme. But there appears to be no way the current owners could get a plan through bankruptcy court without the cooperation of the Anschutz-Oaktree contingent.
Regal would become the 11th major U.S. exhib to file for bankruptcy reorg over the past year amid an industrywide debt hangover from the recent multiplex-building binge. Regal operates about 4,328 screens in 391 theaters, according to a recent regulatory filing.