S&P Affirms Ratings on Carmike Cinemas (CKEC); Sees Lower, Sustained Leverage in 2015

Standard & Poor's Ratings Services said today that it affirmed its 'B+' corporate credit rating on Columbus, Ga.-based movie exhibitor Carmike Cinemas (NASDAQ: CKEC). The rating outlook remains stable.

At the same time, we assigned our 'BB' issue-level rating and '1' recovery rating to the company's proposed $230 million senior secured second-lien notes due 2023. The '1' recovery rating indicates our expectation for very high recovery (90%-100%) of principal in the event of a payment default.

The 'BB' issue-level and '1' recovery rating on the company's upsized revolving credit facility (now $50 million) remain unchanged.

"The 'B+' corporate credit rating on Carmike reflects our view that the company's leverage will decline to below 5x in 2015 and remain below 5x on a sustained basis," said Standard & Poor's credit analyst Jawad Hussain. "We also expect that the company will continue to direct free cash flow toward theater expansion and acquisitions, modestly improving its circuit despite industry pressures on attendance."

The stable outlook reflects our expectation that Carmike's leverage will decline to below 5x during the next six to 12 months and remain below that level on a sustained basis. We also expect the company to continue to direct free cash flow toward theater expansion and customer engagement improvements while maintaining "adequate" liquidity.

We could lower the rating if we conclude that Carmike's leverage will increase or remain above 5x as a result of box office declines or underperforming acquisitions. We could also lower the rating if we believe that the company's discretionary cash flow will turn negative as a result of attendance declines and higher capital spending.

Although unlikely, we could raise the rating if Carmike's operating performance continues to improve further, resulting in substantial EBITDA growth enabling the company to reduce leverage below 4x, despite box-office volatility. An upgrade would also necessitate the company continuing to increase its scale and geographic diversification.

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