Oct. 16, 2009 (Business Wire) -- Fitch Ratings has affirmed the following rating on Regal Entertainment Group (RGC) and Regal Cinemas Corporation (Regal Cinemas):

RGC

--Issuer Default Rating (IDR) 'B+';

--Senior unsecured convertible notes 'CCC/RR6'.

Regal Cinemas

--IDR 'B+';

--Senior secured facility 'BB+/RR1';

--Senior unsecured notes 'B+/RR4';

--Senior subordinated notes 'B-/RR6';

The Rating Outlook is Stable.

The ratings continue to reflect RGC's size and position as the largest domestic movie exhibitor, with 6,778 screens in 549 theaters. RGC's portfolio has higher-than average screens per location (approximately 12) and Fitch expects the company to continue to improve its relatively modern theater circuit in a disciplined manner. Also, acquisition risk within the exhibitor industry has slightly diminished given National Amusements, Inc. (NAI) recent announcement to preserve their core U.S. assets. The ratings also reflect solid geographic diversity and sound operating performance. The rating and Stable Outlook are supported by Fitch's expectation that the 2010 film slate will continue to support growth in box office revenues in the low single digits, with the premium ticket charge on 3D and IMAX films fueling most of the growth.

Fitch has expected movie theaters to continue to demonstrate their hit-driven characteristics (i.e. dependence on a strong supply of films from the studios), and as such the solid film slate to date has driven industry attendance up approximately 4%. While Fitch believes attendance and box office revenue is relatively uncorrelated with the macro-economy, operating performance is susceptible to meaningful volatility and weakness. Fitch remains concerned with exhibitors' limited control over their core revenue stream, relatively inflexible cost structures and high debt levels.

Intermediate-term risks include increased competition from at-home entertainment media, collapsing film distribution windows, increasing indirect competition from other distribution channels, high operating leverage (which could make theatre operations free cash flow [FCF] negative during periods of reduced attendance) and RGC's history of aggressive common and special dividend payouts (Fitch notes the company did cut its common dividend by 40% earlier in 2009).

Fitch notes that concession revenues have remained stable despite the weak economic conditions. While Fitch does not anticipate a significant decline in concession per patron, Fitch remains cautious that high margin concessions (85% gross margin; 27% of RGC's total revenues), may be vulnerable to reduced per-guest concession spending due to cyclical factors or a re-acceleration of commodity prices.