(The following statement was released by the rating agency)
NEW YORK, March 13 (Fitch) Fitch Ratings has affirmed the Issuer
(IDRs) of Regal Entertainment Group (Regal) and Regal Cinemas
Cinemas) at 'B+'. Fitch has also upgraded the issue ratings of
'B+/RR4'. All other issue ratings have been affirmed. The
Stable. A full list of rating actions follows at the end of this
On Feb. 25, 2014, Regal tendered for any and all of its $311.4
senior notes due 2018 and the $400 million of Regal Cinema's
8.625% senior notes
due 2019 ($711.4 million in total debt tendered).
Simultaneously, Regal launched
a new bond offering to fund the tender.
On March 11, 2014 Regal closed its new bond offering, $775
million of 5.75%
senior notes due 2022, and announced that it had received early
tenders for 71%
and 89% of Regal's and Regal Cinema's senior notes,
respectively. In addition,
Regal announced that any notes not tendered by March 25, 2014
will be called for
redemption at 100% plus a make-whole premium. The redemption of
notes is expected to occur on April 10, 2014.
The 'B+' rating for Regal's notes reflects the improved recovery
following the planned note redemptions. Due to Regal's debt
subordinated to Regal Cinemas debt, future issuance of debt by
would pressure the 'B+/RR4' issue ratings.
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
Despite a strong comparison with the 2012 industry box office,
2013's film slate
delivered positive growth in box office revenues, up 0.8%,
according to Box
Office Mojo. Attendance declines of 1.3% were offset by a 2.1%
average ticket price. This will pose a tough comparison year in
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
Soldier', 'The Amazing Spider-Man 2', 'X-Men: Days of Future
'Transformers: Age of Extinction', 'The Hunger Games: Mockingjay
Part 1', and
'The Hobbit: There and Back Again', headline a strong film
slate. Fitch believes
the film slate will support industry-wide box office revenue
levels with flat to
low single digit declines in attendance and flat average ticket
Fitch believes the investments made by Regal and its peers to
patron's experience are prudent. While high margin concessions
may be pressured,
Fitch believes that in the long term, the exhibitors will
delivering an improved value proposition to its patrons, and
that premium food
services/offerings will grow absolute levels of revenue and
Fitch believes that Regal will continue to focus free cash flow
toward expansion/build-out of theaters, acquisition of theater
The ratings factor the intermediate-/long-term risks associated
competition from at-home entertainment media, limited control
trends, collapsing film distribution windows and increasing
from other distribution channels (such as DVD, VOD, and OTT).
For the long term,
Fitch continues to expect that the movie exhibitor industry will
in growing attendance and that any potential attendance declines
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 $281 million of
cash on hand as
of Dec. 26, 2013 and $82.3 million availability under its $85
due 2017. FCF before dividend, as of Dec. 26, 2013, latest 12
month (LTM) was
$235 million. Fitch expects pre-dividend FCF between $200
million and $300
million annually over the next two years. Fitch estimates
million in annual dividends.
Pro forma the refinancing, Regal has a manageable maturity
profile with Regal
Cinemas' term loans due in 2017 as its next material maturity:
--Regal Cinemas' $978 million secured term loans (due 2017;
amortize $10 million
--Regal's new $775 million unsecured notes (due 2022);
--Regal's $250 million unsecured notes (due 2023);
--Regal's $250 million unsecured notes (due 2025).
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 Dec. 26, 2013.
Regal's Recovery Ratings reflect Fitch's expectation that the
of the company and, thus, recovery rates for its creditors, will
be maximized in
a restructuring scenario (as a going concern) rather than a
estimates a distressed enterprise valuation of $2.1 billion,
using a 5x multiple
and including an estimate for Regal's 20% stake in National
CineMedia, LLC of
approximately $200 million.
The 'RR1' Recovery Rating for the company's credit facilities
belief that 91% - 100% 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% of its remaining $3.3
billion in operating
lease commitments due to their significance to the operations in
scenario and is liable for 15% of those rejected values (at a
The structurally subordinated senior unsecured notes at Regal
are expected to
have average recovery (31% - 50%), reflecting an 'RR4'. Any
future issuance of
debt by Regal Cinemas would pressure the 'B+/RR4' Regal issue
Limited Rating Upside: Fitch heavily weighs the prospective
Regal and its industry peers in arriving at the long-term credit
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
exhibitors, will continue to consolidate. While not anticipated,
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
per-guest concession spending that drove leverage beyond 4.5x
would pressure the
rating as well.
Fitch has taken the following rating actions for Regal and Regal
--IDR affirmed at 'B+';
--Senior unsecured notes upgraded to 'B+/RR4'from 'B/RR5'.
--IDR affirmed at 'B+';
--Senior secured credit facility affirmed at 'BB+/RR1';
--Senior unsecured notes affirmed at 'BB/RR2'.
The Rating Outlook is Stable.
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
Media Relations: Alyssa Castelli, New York, Tel: +1 (212) 908
Additional information is available at 'www.fitchratings.com'.
The issuer did
not participate in the rating process, or provide additional
the issuer's available public disclosure.
Applicable Criteria & Related Research:
--'Corporate Rating Methodology: Including Short-Term Ratings
and Parent and
Subsidiary Linkage' (Aug. 5, 2013);
--'Credit Encyclo-Media VI: Fitch's Comprehensive Analysis of
the U.S. Media &
Entertainment Sector' (Sept. 19, 2013);
--'Regal Entertainment Group' (Sept. 26, 2013);
--'An Exclusive Preview: Fitch's 2013 Movie Exhibitor Outlook
(April 12, 2013).
Applicable Criteria and Related Research:
Corporate Rating Methodology â€“ Effective 12 August 2011 to 8
Credit Encyclo-Media VI: Fitchâ€™s Comprehensive Analysis of the
U.S. Media &
Regal Entertainment Group
An Exclusive Preview â€” Fitch's 2013 Movie Exhibitor Oulook and
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