Anschutz Banks On Debt To Control Regal Cinemas

Billionaire investor Philip Anschutz is making a run at the world's largest exhibition circuit, Regal Cinemas Inc., only months after taking control of rival exhibitor United Artists Theatre Circuit.

Acting through investment bank Salomon Smith Barney, Anschutz has built up a substantial holding of Regal's outstanding bank debt in preparation to make a bid for control ahead of a likely bankruptcy filing, according to banking sources in New York.

The Denver-based Anschutz, in conjunction with Los Angeles-based investment fund Oaktree Capital, is believed to have acquired more than $345 million of Regal's bank debt of slightly less than $1 billion.

The company has another $800 million in public debt, but investors in those securities have a weaker collateral position than the bankers.

The bank debt acquired by Anschutz and Oaktree is believed to split 80%-20% in Anschutz's favor. While the $345 million of debt controlled by the two groups represents 35% of Regal's bank debt, it could transfer to a larger equity share under a planned financial restructure of the company.

It remains unclear whether Anschutz would be able to combine the 4,000-screen Regal circuit with UATC's 1,600 screens. Such a combination would dwarf Loews Cineplex Entertainment, the nation's second-largest theater circuit with 2,700 screens.

Regardless of any potential merger, both circuits are likely to shutter many screens as they scale back unprofitable theater properties.

As he did with UATC, Anschutz appears to be preparing to swap the bank debt for equity if Regal initiates a financial restructuring with a "prearranged" bankruptcy filing.

Such an arrangement would require agreement of Regal's other bankers and the company's board of directors. So far, only preliminary discussions have been held between the parties, sources familiar with negotiations said.

Investment firms Hicks, Muse, Tate & Furst and Kohlberg Kravis Roberts & Co. are the majority shareholders of Regal, but their ability to control the company is jeopardized by its inability to make interest payments on its debts.

Eight exhibitors — Carmike Cinemas, UATC, Edwards Cinemas, General Cinema, Silver Cinemas, Resort Cinemas of America, Mann Theatres and CinemaStar Luxury Theatres — have sought Chapter 11 bankruptcy protection amid the deepest economic crisis in exhibition in decades.

Analysts and investors expect that two more Chapter 11 filings are not far away: Regal and Loews Cineplex Entertainment Corp. are seen as likely to opt to complete their financial restructure with a voluntary bankruptcy filing.

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