Nat'l Amusements inks debt restructuring deal

Agreement with lenders doesn't require specific asset sales

NEW YORK -- Sumner Redstone's holding firm, National Amusements, has reached a deal in principle with its lenders to restructure $1.6 billion in debt and is expected to start a sales process for movie theaters with several hundred screens soon.

The agreement, which is subject to definitive agreements, follows months of negotiations after NA breached terms of its lending arrangements in the fall, forcing it to sell non-voting shares of Viacom Inc. and CBS Corp., which it controls.

NA said the deal does not require specific asset sales, but allows it to make debt payments with cash flow from operations, through tax refunds, as well as the sale of holdings as it sees fit.

The deal extends the maturity of NA's debt to the end of 2010, giving the privately-held holding firm more breathing room. After a small repayment at the time of closing that will bring its overall debt to $1.46 billion, another debt payment is due toward the end of this year, and another two payments are due next year. The restructured debt will be secured by all of NA's assets, according to the firm.

Redstone has repeatedly said that he doesn't plan to sell more shares of CBS and Viacom, and sources said Friday that remains his plan -- unless he ended up not having another choice.

However, NA is expected to try and sell parts of its theater circuit, which is also called National Amusements. It has theaters with about 1,500 screens overall, and sources have said it could shed theaters with around 900 of those screens and only focus on theaters in and around New England. The sales process is expected to kick off shortly. A spokeswoman for the circuit declined comment on Friday.

Wall Street observers have their doubt that asset sales can be pulled off -- especially at solid prices -- in the current credit crunch. "Every restructuring requiring an asset sale remains very tricky," said Moody's Investors Service analyst and senior vp Neil Begley. "Companies are not prepared to play with their liquidity." And if the put their cash to work, they are more likely to repay debt.

Theater operators are holding up well in the recession, but they generally don't have strong enough balance sheets to give them leeway to risk major acquisitions right now, given that credit markets could remain tight all year, which already makes regular debt maturities a challenge to handle. "The credit markets look insecure this year, and next year may also still be iffy," said Begley.

Regal Entertainment Group CEO Mike Campbell recently said his firm is likely would review any theaters put up for sale by NA, but warned that the credit crisis continues to make deals difficult. "Clearly, financing would be an issue," he said (HR 2/20).

However, one source familiar with the situation said that the NA circuit owns its own land, meaning a buyer wouldn't have to deal with often contentious lease issues. Redstone believes this makes the NA theaters more valuable.

Besides theater operators, private equity firms are also likely to be approached about the likely NA theater sale given that the solid box office performance so far in the recession could be attractive for them.
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