Fitch Ratings assigns a rating of 'B/RR5' to In a release on
The notes will be issued under the
Regal intends to use the net proceeds after tender or, if the tender offer is terminated, for general corporate purposes and for repayment of debt at Regal or
Fitch expects the transaction to be leverage neutral and to reduce interest expense.
Key Rating Drivers
Regal's ratings reflect Fitch's belief that movie exhibition will continue to be a key promotion window for the movie studios' biggest/ most profitable releases.
Despite a strong comparison with the 2012 industry box office, 2013's film slate delivered positive growth in box office revenues, up 0.8 percent, according to Box Office Mojo. Attendance declines of 1.3 percent were offset by a 2.1 percent increase in average ticket price. This will pose a tough comparison year in 2014. However, as in the past few years, there are many high-profile sequels that have a strong likelihood of box office success. The releases of 'Captain America:
Fitch believes the investments made by Regal and its peers to improve the patron's experience are prudent. While high margin concessions may be pressured, Fitch believes that in the long term, the exhibitors will benefit from delivering an improved value proposition to its patrons, and that premium food services/ offerings will grow absolute levels of revenue and EBITDA.
Fitch believes that Regal will continue to focus free cash flow (FCF) deployment toward expansion/build-out of theaters, acquisition of theater assets, and/or for shareholder-friendly activities.
The ratings factor the intermediate-/long-term risks associated with increased competition from at-home entertainment media, limited control over revenue trends, collapsing film distribution windows and increasing indirect competition from other distribution channels (such as DVD, VOD, and OTT). For the long term, Fitch continues to expect that the movie exhibitor industry will be challenged in growing attendance and that any potential attendance declines will offset some of the growth in average ticket prices.
In addition, Regal and its peers rely on the quality, quantity, and timing of movie product, all factors out of management's control.
Liquidity and Leverage
Regal's solid liquidity position is supported by
Pro forma the refinancing, Regal has a manageable maturity profile with Regal Cinemas' term loans due in 2017 as its next material maturity:
--Regal's new unsecured notes (due 2022);
Fitch believes that Regal will have sufficient liquidity, including access to credit markets, to address its maturities.
Fitch calculates unadjusted gross leverage of 3.9x (including NCM dividend), and interest coverage at 4.2x as of
Regal's Recovery Ratings reflect Fitch's expectation that the enterprise value of the company and, thus, recovery rates for its creditors, will be maximized in a restructuring scenario (as a going concern) rather than a liquidation. Fitch estimates a distressed enterprise valuation of
The 'RR1' Recovery Rating for the company's credit facilities reflects Fitch's belief that 91 percent to 100 percent expected recovery is reasonable. While Fitch does not assign Recovery Ratings for the company's operating lease obligations, it is assumed the company rejects only 30 percent of its remaining
The rating of Regal's senior unsecured notes reflects the structural subordination of the notes. The senior unsecured notes at the parent level would be expected to have below average recovery (11 percent - 30 percent), reflecting an 'RR5'.
Limited Rating Upside: Fitch heavily weighs the prospective challenges facing Regal and its industry peers in arriving at the long-term credit ratings. Significant improvements in the operating environment (sustainable increases in attendance) and sustained deleveraging could have a positive effect on the rating, though Fitch views this as unlikely.
Negative Trigger: Fitch anticipates that the company, and other movie exhibitors, will continue to consolidate. While not anticipated, a debt-financed material acquisition or return of capital to shareholders that would raise the unadjusted gross leverage beyond 4.5x could have a negative effect on the rating. In addition, meaningful, sustained declines in attendance and/or per- guest concession spending that drove leverage beyond 4.5x would pressure the rating as well.
Fitch currently rates Regal and Regal Cinemas as follows:
--Issuer Default Rating (IDR) 'B+';
--Senior unsecured notes 'B/RR5'.
--Senior secured credit facility 'BB+/RR1';
--Senior unsecured notes 'BB/RR2'.
The Rating Outlook is Stable.
Additional information is available at 'fitchratings.com'.
--'Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage' (
--'Credit Encyclo-Media VI: Fitch's Comprehensive Analysis of the U.S. Media & Entertainment Sector' (
--'An Exclusive Preview: Fitch's 2013 Movie Exhibitor Outlook and Analysis' (
Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage
Credit Encyclo-Media VI: Fitch's Comprehensive Analysis of the U.S. Media & Entertainment Sector
An Exclusive Preview: Fitch's 2013 Movie Exhibitor Outlook and Analysis
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Fitch Ratings assigns a rating of 'B/RR5' to
In a release on