EXHIBITOR CARMIKE TURNS PAGE TO
CHAPTER 11
State of the industry caused financial woes, others may
follow
By JILL GOLDSMITH
NEW YORK -- Things took a nasty turn in the beleaguered movie theater
biz Tuesday as Carmike Cinemas, the nation's fourth-largest exhibitor, filed
for Chapter 11 and the biggest chain in the country, Regal Cinemas, hinted
that it might not be far behind.
"Things are bad in the sector, but they're about to get worse," said analyst
Daniel O'Neill of Credit Suisse First Boston. "You can't keep pouring cap-ex
into a no-growth business." He means the capital expenditure on new
theaters that has lifted the nation's screen count to untenable levels.
Atlanta-based Carmike still has some cash on hand but said senior lenders
blocked it from making an interest payment since it violated loan covenants
that require it to maintain certain financial ratios. That generally refers to a
debt-to-equity ratio, which has been leaning heavily toward the debt side at
Carmike and most of its competitors for the past several years.
Distrib execs fully expect Carmike's existing cash and resources to allow the
circuit to soldier on without being acquired, as have other wounded circuits.
Carmike opted for Chapter 11 after careful consideration "of our current
circumstances and the state of our industry," company chairman Michael
Patrick said. "Our focus is on preserving our assets and improving our
operational strength during this difficult period."
Making arrangements
United Artists, generally considered to be in the worst shape of the bunch, is
hashing out arrangements with its senior lenders. And Regal said it hopes to
do the same by the end of the third quarter. AMC Entertainment is hurting
as well, as is Cinemark and, to a lesser extent, Loews Cineplex.
The group is staggering under an enormous debt load from building
expensive multiplexes across the country, even as attendance in the theaters
is flat, and in some cases, down. June was dismal, and competition from the
Olympics in September will kill fourth-quarter comparisons as well.
And the new locations are cannibalizing the old ones, which are being closed
down much too slowly.
There are about 37,000 screens in the U.S., and most, including the
exhibitors themselves, agree that the number needs to fall to 25,000 for the
industry to breathe easy again. Exhibs have slowed down their building, but
have not stopped it. The screen count was up 9% last year and will be up an
estimated 4%-6% this year, as exhibs apparently keep spotting markets that
are screaming for a new multiplex.
It's an example of how "individually rational decisions led to collectively
irrational behavior," O'Neill said.
Worse is good
Wall Street is looking for more cases of Chapter 11. And, paradoxically, the
worse things get, the faster they may improve, as financial ills force
consolidation and push exhibs to shutter underperforming theaters faster.
Mergers in the industry are still a possibility, except none of the players has
spare cash for deals, and their stocks and bonds are all way down.
Carmike shares closed at $1.94 Tuesday. They were trading at close to $15
a year ago.
The circuit owes significant amounts to several of the studios that supply it
with product. But Carmike's chief creditors are Bank of New York, trustee
for holders of $209.3 million in bonds. Atlanta-based Wachovia Bank is
owed $263 million in loans, according to court filings.
(Carl DiOrio, Dade Hayes in Hollywood and Bloomberg News
contributed to this report.)
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