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TEXT - Fitch comments on Regal Entertainment Group
Nov 30 - Fitch's ratings of Regal Entertainment Group (Regal) and Regal Cinemas Corporation (Regal Cinemas) are unaffected by Regal's announcement of a $1 per share special dividend and the acquisition of the Great Escape theater circuit. A complete list of Fitch's ratings on Regal and Regal Cinemas is provided below. Regal announced that it is declaring a special cash dividend of $1 per share of class A and B common stock, which totals approximately $155 million and is payable on Dec. 27, 2011. Further, Regal announced the acquisition of Great Escape theater circuit, totaling 25 theaters and 301 screens, for a purchase price of $91 million. Regal disclosed a pre-synergy multiple of 5.5 times (x), which is consistent with recent theater acquisition activity. Fitch estimates AMC Entertainment's acquisition of Kerasotes Showplace at approximately 5.3x. The special dividend and acquisition is consistent with Fitch's expectation for Regal's cash deployment. However, 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 impact on the ratings. As of Sept. 30, 2012 Regal had approximately $2 billion in debt, with and lease-adjusted gross leverage at 4.8x and unadjusted gross leverage at 4.1x. As of Sept. 30, 2012, liquidity was made up of $251 million in cash and $82 million in credit facility availability (reduced by $3 million in letters of credit), under the company's $85 million revolving credit facility due May 2015. Fitch expects the special dividend will be funded with existing liquidity. While, pro forma September 2012 cash balance would be low post the special dividend and acquisition, approximately $5 million, the fourth quarter is typically a strong cash generating quarter. Fitch expects year end liquidity to be adequate, with cash balances in excess of $50 million and an undrawn credit facility. Fitch calculates September 2012 last 12 month FCF (after dividends) of $90 million. The ratings continue to reflect the following key considerations: --Fitch believes movie exhibition will continue to be a key promotion window for the movie studios biggest/most profitable releases. --Solid box office performance, with 2012 box office revenues up 5.8% as of Nov. 28, according to Box Office Mojo. Fitch expects the remaining 2012 film slate, including the upcoming Hobbit film, to continue to support the year's growth rate. --Long-term, Fitch continues to expect that the movie exhibitor industry will be challenged in growing attendance and any potential attendance declines will offset some of the growth in average ticket prices. --The ratings also incorporate the intermediate/long-term risks associated with increased competition from at-home entertainment media, limited control over revenue trends, the pressure on film distribution windows, increasing indirect competition from other distribution channels (such as DVD, VOD, and the Internet), and high operating leverage (which could make theater operators FCF negative during periods of reduced attendance). In addition, RGC and its peers rely on the quality, quantity, and timing of movie product, all factors out of management's control. Fitch currently rates Regal and Regal Cinemas as follows: Regal --Issuer Default Rating (IDR) 'B+'; --Senior unsecured notes 'B-/RR6'. Regal Cinemas --IDR 'B+'; --Senior secured credit facility 'BB+/RR1'; --Senior unsecured notes 'BB/RR2'. The Rating Outlook is Stable.
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