As New Yorkers bristled at the news last week that Loews Cineplex is raising its city movie-ticket prices to a downright offensive $10, the ongoing troubles plaguing the movie theatre sector motivated Moody's Investors Service to issue a report elucidating the agency's sector-specific, nuanced criteria for rating CMBS loans backed by these theatres.
While Loews representatives claim that the increase in ticket price was not related to the company's recent filing for bankruptcy protection - and was, in fact, done to cover rising costs - observers interpret the move as part and parcel of the overarching distress which has afflicted the sector.
Loews joins other movie exhibitors Carmike, United Artists, Silver Cinemas, Edwards Theaters, and General Cinemas, who are all involved in Chapter 11 proceedings.
Loews' bankruptcy is part of the movie firm's deal to be acquired by investment groups Onex Corporation, Oaktree Capital Management and Pacific Capital Group.
The trouble in movie land has been caused by a building spree that led to an overabundance of theaters, a fact pointed out by the Moody's report.
Moody's highlights the fact that overbuilding in the sector has caused the current screen count to be 30% higher than can be sustained, rising from 23,814 screens in 1990 to 37,185 screens in 1999.
Even though exposure to Loews in CMBS deals is minimal according to Merrill Lynch research, Moodys asserts that the unique characteristics of this property type require a different kind of analysis than more traditional real estate, despite the fact that these types of loans comprise a small percentage of CMBS collateral.
The rating agency said that since movie theatres use physical structures that do not fit well for other uses, its analysis on these types of properties will focus on the viability of a given theatre and its overall market.
"We're looking very carefully at older theatres with twelve screens or less,'' said Stewart Rubin, a vice president at Moody's.
However, since the theater market is about 30% overbuilt, Moody's is also closely monitoring all theaters, Stewart said.
For site-specific evaluations, the rating agency will also look at other factors such as changing demographics, as well as the theatre's location, physical condition and revenue sources.
The Merrill Lynch report included a list of CMBS deals that have Loews exposure in them. The bank stated that in any loan Loews may constitute only one of many tenants in the property.
