Moody's lowers Hollywood Theaters

Moody's Investors Service said it downgraded Hollywood Theaters, Inc.'s corporate family rating to B3 from B2, probability-of-default rating to Caa1 from B2, senior secured first-lien bank credit facility to B2 (LGD2, 25%) from B1 and senior secured second-lien bank credit facility to Caa2 (LGD5, 72%) from Caa1.

The outlook was revised to negative from stable.

The agency said the downgrade reflects increased refinancing risk and uncertainty about near-term covenant compliance. Moody's said the company lacks internal funds to repay its first-lien credit facility when it matures on July 31, 2009 and that significant deterioration in credit markets will likely reduce the company's access to the capital markets. In addition, the company narrowly complied with its financial maintenance covenants in the third quarter and requisite tests step down further in the fourth quarter.

Hollywood's ratings reflect substantial refinancing risk, high leverage of about 6 times, lack of scale, dependence on film studios and weak industry growth profile, the agency said.

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