Cinedigm Borrows $195 Million Toward Digital Cinema Expansion

Cinedigm Entertainment Logo - H 2011

Cinedigm Entertainment Logo - H 2011

The new loans provide lower interest costs and more flexibility to borrow for growth or acquisitions.

Cinedigm Digital Cinema Corp. has refinanced loans used to pay for installation of digital cinema systems in nearly 12,000 U.S. and Canadian movie theaters, as well as its entire corporate debt, at a lower interest rate for a longer term with an improved investment rating, using money it is already contracted to receive. The move leaves Cinedigm positioned to do additional borrowing in the future to grow the company or make a significant acquisition.

"This transaction reaffirms the value of the Company’s digital cinema asset base and positions Cinedigm to accelerate our growth plans,” said Chris McGurk, chairman and CEO of Cinedigm.

The loans will be paid off over coming years as the major Hollywood studios fulfill their contract to pay “virtual print fees” each time one of their movies plays a digital theater. All of the systems have been installed, but the payout takes years more to be realized, which is why the loans were needed.

Several years ago, the studios agreed to the virtual print fees to help finance installation of digital cinemas to replace analog film projection, which had been the standard for over 100 years. The virtual fee deals typically run 10 years. When they end, the studios will save millions that used to go to pay for physical prints of movies that show in theaters.

On Tuesday, Cinedigm said it had closed a $125 million credit senior facility with a group of banks and investors led by Scoiete Generale Corporate & Investment Banking, along with a $70 million credit facility from Prospect Capital Corporation.

The loans are a kind of mortgage against the money coming from the virtual print fees and service charges the theaters pay as part of the digital conversion. They are both non-recourse loans, which means Cinedigm wouldn't be on the hook to repay them if for some reason the studios did not pay (which is highly unlikely).

The new loans replace an existing $92 million non-recourse senior 2010 term loan and a $98 million recourse note. The new five-year senior loan is substantially lower than the current loan rate.

The new financing by investment company Prospect will be at a rate of 13.5 percent, which includes a cash rate of 9 percent. The Prospect loan also extends the time to repay from the current deadline in 2014 to March 2021.

The previous corporate debt meant that Cinedigm had limited ability to borrow other money. Now, with non-recourse loans, Cinedigm’s other businesses, such as software and content (including movie distribution), are no longer leveraged. That means if it wants to borrow more in the future against those businesses, it will be free to do so.

“This refinancing is a significant step in our progress towards strengthening Cinedigm's balance sheet,” added Adam M. Mizel, COO and CFO of Cinedigm.  “By lowering our cost of capital, extending our mezzanine debt maturity to 2021 and shifting all of our debt to be secured only by our deployment businesses, we have improved our capital flexibility, unlocked equity value and simplified our story.”

Richard Knowlton, managing director of Societe Generale, Leveraged Media and Telecom Finance, said the syndication of the credit facility is already “over subscribed.”

Blackstone Advisory Partners Lp. acted as financial adviser to Cinedigm.