Fitch Affirms Regal Entertainment's IDR at 'B+'; Outlook Stable

Business Wire, Jan 16, 2008

CHICAGO -- Fitch has affirmed its Issuer Default Ratings (IDRs) on Regal Entertainment Group (RGC), Regal Cinemas Corporation (Regal Cinemas) at 'B ' and the individual issue ratings listed below. The affirmation affects approximately $2 billion of debt (including debt related to capital leases and lease financing transactions) at Sept. 27, 2007. The Rating Outlook is Stable.

Fitch has affirmed the following ratings with a Stable Outlook:

Regal Cinemas:

--IDR at 'B ';

--Senior secured facility at 'BB/RR2';

--Senior subordinated notes at 'B/RR5'.

RGC

--IDR at 'B ';

--Senior unsecured convertible notes at 'B-/RR6'.

The company announced yesterday that it had agreed to acquire Consolidated Theaters for $210 million in cash. Consolidated is a theater exhibitor with 28 theaters and 400 screens in Georgia, Maryland, North Carolina, South Carolina, Tennessee and Virginia. The deal is expected to close in the first half of 2008. Following the receipt of proceeds from the IPO of National Cinemedia (NCM) in 2007 and prior to the announcement, the company had significant cash balances that Fitch had anticipated would be used for acquisitions or other corporate uses and not to repay debt. Regardless of how the transaction is ultimately financed, Fitch believes the company has meaningful flexibility at its current rating to make this acquisition.

The ratings continue to reflect the company's size and position as a leading theater exhibitor, solid geographic diversity, sound operating performance, and relatively stable free cash flow generation. These strengths are balanced by the intermediate term risks associated with collapsing film distribution windows, increased competition from at-home entertainment media, heavy reliance upon a limited number of film distribution companies, limited control over revenue trends, high operating leverage which could make theater operators free cash flow-negative in a downturn, and a history of aggressive dividend payouts.

RGC's liquidity was strong with cash of $382.7 million and $99.2 million available under the company's $100 million revolver as of Sept. 27, 2007. The company's maturity schedule is manageable with less than $35 million due in each of 2008, 2009 and 2010, excluding $123.7 million of convertible notes which are due May 15, 2008 and convertible at holder's option. The company's liquidity is further supported by the working capital dynamics of the theater exhibition business. At LTM Sept. 30, 2007, unadjusted leverage was 3.6 times (x), while adjusted leverage was 5.2x.

In initially establishing the long-term ratings, Fitch heavily weighed the prospective challenges facing RGC and its industry peers. We anticipated that movie exhibitors would continue to consolidate and pursue moderate shareholder friendly activity. The acquisition of consolidated, announced yesterday, is consistent with our expectations. Going forward, the company continues to have flexibility to make acquisitions, invest in the business organically, and prudently return capital to shareholders.

In terms of the Writers Guild of America (WGA) strike, Fitch does not believe the movie exhibitors such as Regal, AMC Entertainment ('B'; Stable Outlook) and Cinemark (NR) will be impacted by this strike over the near-term as they can rely on the lag time between pre-production and final film release giving them a slate of film product over the next nine to 12-month period. Obviously, a more protracted strike could have a negative impact on these entities as they are solely dependent on the studios product while maintaining a very high fixed cost base and, generally speaking, weaker capital structures than companies in other media and entertainment sub-sectors.

For additional information on the movie exhibitor industry, see press release 'Fitch: Outlook for U.S. Movie Exhibitors Remains Stable Near Term,' dated Aug. 31, 2008, or full report on Regal Entertainment, both available on www.fitchratings.com.

Fitch's Recovery Ratings (RR) are a relative indicator of creditor recovery prospects on a given obligation within an issuers' capital structure in the event of a default

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site. The ratings above have been initiated by Fitch as a service to investors. The issuer did not participate in the rating process other than through the medium of its public disclosure.