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Cinema theater chain Cinemark Holdings has gone to the debt market for fresh cash amid the novel coronavirus pandemic.
The exhibition giant on Monday said it has launched a private offering for $250 million in senior secured notes due 2025. The move follows Fitch Ratings on April 9 downgrading the credit rating for Cinemark over concerns that current theater closures amid the COVID-19 crisis will last until June “at the earliest.”
That was followed on April 13 by Moody’s Investors Service also downgrading Cinemark’s credit rating to B2 from B1, with a negative outlook, over a “likelihood that leverage will remain elevated above the mid-3X range over the next two years given the cinema industry’s current operational challenges,” the rival rating agency said in an investors note.
Cinemark said it intends to use the proceeds of the debt offering “for general corporate purposes, including further increasing its liquidity.” The senior notes, which are exempt from U.S. securities registration as they are aimed at international buyers, will be secured by a first-priority lien on certain leasehold property interests.
Cinemark, the third-largest domestic cinema chain, on March 16 announced temporary theater closures at all of its 345 sites amid the COVID-19 crisis. That was followed by rival cinemas across the U.S. also going dark as a health safety precaution.
Fitch last week pointed to Cinemark having $488.3 million in cash on its balance sheet as of the end of 2019, and the company having drawn $98.8 million of availability under its revolving credit line March 25 of this year.
“Fitch believes this provides adequate runway to fund the company’s operations through the end of fiscal 2020,” the ratings agency said, although it added that it would monitor the company’s liquidity position should the public health crisis extend into the summer months.
Moody’s added that, despite Cinemark’s “sizable cash balances,” it expects the company to introduce cost-cutting measures, including seeking cash relief or rent deferrals while its cinema screens remain shut down.
The vote of confidences in Cinemark’s liquidity by Fitch and Moody’s contrasts with Wall Street analysts seeing a possible Chapter 11 bankruptcy filing from rival cinema giant AMC Theatres as the coronavirus pandemic takes its toll on the exhibition sector.
April 13 8:00 a.m. Updated with comments by Moody’s Investor Services as it downgrades Cinemark’s credit rating with a negative outlook.
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