Regal Cinemas increases term loan B by $400 million, cancels proposed bond offering

By Sara Rosenberg and Paul A. Harris

New York, April 26 - Regal Cinemas Corp. decided to increase its recently launched credit facility by $400 million and cancel its proposed $400 million subordinated notes offering on strong interest from the institutional loan market. The upsizing was seen in the company's proposed term loan B, which is now sized at $1.65 billion, compared to the original size of $1.25 billion.

"The bank deal is going so well that it represents a significant reduction in the cost of capital for the company," a market source told Prospect News. "The company could not refuse the offer to upsize the credit facility and still achieve that pricing."

Pricing on the 61/2-year institutional tranche is the same as the syndicate went out with at launch at Libor plus 275 basis points, according to a syndicate document. The term loan is being offered to investors at par.

The company's $100 million five-year revolver, which is also priced with an interest rate of Libor plus 275 basis points, remained unchanged in terms of size and pricing.

The term loan B was already reported as moving along very well in terms of syndication with some very large orders finding their way into the books within a few hours after the April 19 bank meeting as existing and potential new lenders found themselves intrigued by this latest transaction.

According to one market source, existing lenders who had previously made up a term loan of approximately $500 million were not only looking to roll over their commitments with this new deal, but were looking for a substantial increase in positions as well since this credit has performed well in the past.

As for those investors who maybe chose not to or were unable to get involved in the existing deal, this new credit facility is giving them an opportunity to participate as well, which they apparently are responding favorably to, the source explained.

Commitments are due on April 30.

Credit Suisse First Boston is the sole lead arranger and bookrunner on the deal.

Proceeds from the credit facility will be used to refinance existing debt and to fund the tender offer and consent solicitation for all the company's $350 million aggregate principal amount of 9 3/8% senior subordinated notes due 2012. In addition about $930 million of the proceeds, together with available cash, will be distributed to parent company Regal Entertainment Group, which plans to use about $710 million to pay an extraordinary dividend of about $5.00 per share to its holders of class A and class B common stock, with the balance set aside for general corporate purposes, including potential acquisitions, according to a company news release.

On Monday, Moody's Investors Service assigned its Ba3 rating to Regal's proposed credit facility and withdrew the Ba2 rating on the existing bank credit facilities since they will be entirely refinanced.

Furthermore, Moody's revised its outlook for the company to negative from stable "given the incremental financial risk being absorbed by creditors in favor of shareholders pro forma for the planned (second) special dividend payment, which will also be financed by most of the remaining net proceeds from the new term loan," Moody's said.

"The willingness of management and the board of directors to use significant amounts of incremental debt to affect this fiscal policy highlights yet again that higher financial leverage and correspondingly higher underlying risk will be tolerated to enhance returns for equity holders. While Moody's does not necessarily take issue with the return of excess capital generated by the business or held in cash (in the absence of a higher return opportunity) to shareholders, the increasingly regular assumption of more long-term debt to finance much greater than what would otherwise be more fiscally prudent payout levels puts creditors at greater risk," Moody's continued.

Ratings on Regal reflect high financial leverage and modest coverage of interest, dividends and rents, execution and financing risk associated with management's desire to grow further in size, whether through new build activities or acquisitions, and the mature and highly competitive nature of the theatrical exhibition industry.

Somewhat offsetting these factors is Regal's consistently strong operating performance since emerging from bankruptcy and as anticipated in future periods, the high quality of its relatively modern, upgraded theater base, which correlates to good underlying asset value, and good access to the capital markets, Moody's added.

Standard & Poor's has not yet released a rating on the proposed credit facility, but last Monday it too revised its outlook on Regal Entertainment Group and subsidiary Regal Cinemas Inc. to negative from stable in reaction to the news of the debt-financed dividend payment.

Regal Entertainment Group is a Centennial, Colo., theaters circuit.

Charter continues to inch up

Charter Communications Operating LLC's $3 billion term loan B continued to inch its way higher in the secondary on Monday with quotes reaching 99 7/8 bid, par 1/8 offered by late day, according to a trader.

On Friday, the paper was seen bouncing around a bit but finished quoted around 99½ bid, 99¾ offered, the trader added.

The paper went down to 99¼ bid, 99½ offered upon entering the secondary last Wednesday on market heaviness and then rebounded slightly to 99 5/8 bid, 99 7/8 offered by day's end. Since its entrance into the secondary, the term loan has been slowly climbing higher with it reaching trading levels just under par on Thursday and Friday.

The "rally" of the B loan was attributed to a few motivated sellers in the term loan A clearing out some paper, a trader previously explained to Prospect News.

This institutional term loan was sold to investors at par during syndication and is priced with an interest rate of Libor plus 325 basis points.

Charter's credit facility also contains a $2 billion term loan A, which is priced with an interest rate of Libor plus 300 basis points, and a $1.5 billion revolver, which is priced with an interest rate of Libor plus 300 basis points.

JPMorgan and Bank of America are the lead banks on the St. Louis cable company's deal, with JPMorgan listed on the left.

Proceeds, combined with proceeds from a $1.5 billion senior second lien notes offering, will be used to refinance the bank debt of Charter's subsidiaries, CC VI Operating Co. LLC, Falcon Cable Communications LLC, and CC VIII Operating LLC, all as one concurrent transaction.

Upon completion of this transaction, Charter Operating's outstanding debt is expected to be approximately equal to the outstanding credit facility debt of Charter Operating and its subsidiaries immediately prior to this transaction. One of the principal benefits of the transaction would be to extend about $8 billion of the consolidated debt maturities currently scheduled to be due prior to 2009. The company is also expected to retain more than $1 billion of unused availability under the amended facilities at closing.

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