National Cinemedia cut by Benchmark over 'challenging' movie attendance, ad recovery

MixMedia

In-theater advertising company National CineMedia (NASDAQ:NCMI) was downgraded by investment firm Benchmark on Monday, citing a "challenging" movie theater attendance profile and advertising recovery, as well as the company's heavy debt load.

Analyst Mike Hickey lowered his rating on National CineMedia (NCMI) shares to hold from buy, noting that the uncertainty as it relates to Regal's bankruptcy process and how long its exclusive agreement with the number 2 U.S. movie theater chain lasts is also a part of the downgrade.

"We are confident National CineMedia will be able to amend and extend its existing near-term debt and leverage covenants, but market conditions are challenging and could influence fewer desirable outcomes," Hickey wrote in a note to clients.

The analyst added that it's likely the Regal contract stays with National CineMedia (NCMI), but there is the possibility it is canceled, which would be a "devastating blow" to National CineMedia (NCMI) if it happens.

The owner of Regal, Cineworld (OTCPK:CNWGQ), CNNWQ, filed for bankruptcy last month.

Hickey also pointed out that even though the box office continues to recover, a possible recession may hurt theater attendance and with National CineMedia (NCMI) carrying a debt load that is rated CCC, outlook negative, by S&P, a payment default or subpar restructuring is "looking increasingly likely," perhaps as soon as the middle of next year.

Last month, a lender group of National CineMedia (NCMI) hired Centerview Partners to explore options amid an environment of movie-theater uncertainty and some approaching debt maturities.