Moody's rates Regal loan Ba2

Moody's Investors Service said it assigned a Ba2 rating with a loss-given-default assessment of LGD3 (40%) to Regal Cinemas Corp.'s proposed amended senior secured bank credit facility.

The agency also affirmed the Ba3 corporate family rating, Ba3 probability-of-default rating and B2 senior unsecured convertibles notes due 2008 (LGD6, 95%) of parent company Regal Entertainment Group.

The outlook is stable.

The proposed amendment modestly enhances liquidity by extending the maturity of the revolving credit facility to 2011 from 2009 and the term loan to 2013 from 2010, as well as providing incremental bank capacity. Regal could access this single-purpose incremental bank capacity only to repay the convertible notes.

The agency said Regal's ratings reflect its debt-to-EBITDA ratio of 5.4x and Moody's expectations that dividends will continue to consume much of Regal's free cash flow. Furthermore, like all theater operators, Regal operates in a mature industry with low to negative growth potential, high fixed costs and increasing competition from alternative media and the company remains vulnerable to the studios' ability to create product that will drive attendance.

As the largest domestic operator, however, Regal benefits from scale and geographic diversity. Although Moody's believes that management will continue to direct free cash flow to shareholders or acquisitions rather than repaying debt, the flexibility afforded by this positive free cash flow supports the ratings.

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