National Amusements Inc. Downgraded To 'B-' From 'B+' On Reduced Liquidity, Ratings Remain On CreditWatch Negative

  • Holding company National Amusements Inc. (NAI) announced that it has reached an agreement with its lenders to refinance its $125 million revolving credit facility and cancel the $75 million revolver at its operating entity NAI Entertainment Holdings Inc. (NAIEH).
  • We are lowering our issuer credit rating on NAI to 'B-' from 'B+' because we expect the company's liquidity to remain thin for the rest of 2020 due to negative cash flow from extended theater closures and its limited borrowing capacity after the cancelation of the revolver at NAIEH.
  • All of our ratings on NAI remain on CreditWatch, where we placed them with negative implications on March 10, 2020.
  • We intend to resolve the CreditWatch placement as we receive additional information about the length of the theater closures and any potential changes to ViacomCBS' dividend policy, which could lead to a liquidity deficit. The CreditWatch reflects our expectation that NAI's liquidity will be limited over the rest of 2020 due to extended theater closures. It also reflects that the company's borrowing capacity remains exposed to fluctuations in the value of ViacomCBS' share price.
CHICAGO (S&P Global Ratings) March 27, 2020—S&P Global Ratings today took the rating actions listed above. NAI has cured its covenant violations by refinancing its $125 revolving credit facility (unrated) and canceling the $75 million revolver at NAIEH. Therefore, the company will no longer have any covenants on the $300 million ($261 million outstanding) senior secured term loan at NAIEH. NAI's refinanced revolver will contain a minimum collateral covenant based on the existing stock pledge at NAI, which comprises roughly 3.4 million of ViacomCBS' class A shares and about 6.2 million of its class B shares. The covenant will require that the value of the stock pledge remain above at least 1.5x the amount drawn on the revolver through Nov. 21, 2020, and above 2.0x after that. As of March 26, 2020, the stock pledge was worth about $146 million, which would limit the amount the company could draw under the revolver to approximately $98 million through November 21 and only about $73 million after that. Additionally, NAI drew roughly $25 million from the new revolver to repay the outstanding borrowings under the extinguished revolver at NAIEH, which further reduces its availability to about $73 million over the next six months.
We intend to resolve the CreditWatch placement as we receive additional information about the length of the theater closures, potential updates to the film release slate, and any changes to ViacomCBS' dividend policy.
We could lower our issuer credit rating on NAI by multiple notches if we no longer expect the company to have sufficient liquidity to withstand the extended theater closures related to the coronavirus pandemic. Additionally, we could lower our rating if ViacomCBS cuts its dividend.
While unlikely over the next few months, we could remove our ratings from CreditWatch and affirm the 'B-' issuer credit rating if we believe the company will have sufficient liquidity to address its cash outflows over the next 12 months and there is no risk of further covenant violations. This would likely require conclusive knowledge about the length of the theater closures and a commitment from ViacomCBS that it will not reduce its dividend.
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