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3 Investors Take Roles in Bailing Out Theaters

Entertainment: Loews and Edwards cinemas, both having filed for Chapter 11 bankruptcy protection, agree to deals.

February 16, 2001|SALLIE HOFMEISTER | TIMES STAFF WRITER

Three enigmatic Los Angeles investors--former Michael Milken associate Gary Winnick, Staples Center and Kings owner Philip Anschutz and distressed debt specialist Oaktree Capital Management--are emerging as white knights for the nation's troubled theater chains.

Two of the leading cinema chains--Loews Cineplex Entertainment Corp. and Edwards Theatres Circuit Inc.--agreed Thursday to be bailed out by separate investment groups made up of these players.

Loews, the nation's second-largest and oldest theater chain, filed for Chapter 11 bankruptcy protection Thursday as part of an agreement to be acquired by an investment group that includes Oaktree and Winnick's Pacific Capital Group Inc. Leading the group, which has agreed to make a $245-million equity infusion in Loews, is Canadian takeover specialist Gerry Schwartz, who controls Onex Corp., which already owns several theaters.

Sony Corp. owns a 39.5% equity stake in Loews, and Vivendi Universal owns a 25.5% stake.

Separately, Edwards, the state's largest theater chain, which is based in Newport Beach, said Thursday that it has signed a letter of intent under which Anschutz Corp. and a fund managed by Oaktree will make a significant but undisclosed investment. Edwards is already in bankruptcy proceedings.

The Edwards transaction makes Anschutz, a Denver-based oil and railroad billionaire, the most powerful force in the theater business in this country. Last fall, Anschutz, who owns 18% of Qwest Communications, the telecommunications giant, seized a position in the debt of United Artists Theater Co. that could lead to control.

He has also been accumulating debt in Knoxville, Tenn.-based Regal Cinemas, the nation's largest theater chain. Anschutz and Oaktree together hold $345 million of Regal's $1 billion in debt, although sources say the current owners are fighting to retain control.

United owns 1,604 screens, Regal operates 4,361 and Edwards runs 739.

"[Anschutz is] going to be the dominant player, or the sole player, in many markets," said Art Gimmy, president of Arthur Gimmy International, a theater appraisal firm.

David Allen, a media analyst with Morgan Stanley Dean Witter, said he does not believe the pact will run into any problems with regulators.

"Somebody could have 20% to 30% of this industry and it wouldn't trigger antitrust concerns," he said.

Though Anschutz was the earliest to recognize the potential in buying the bonds of ailing theater chains, others are following suit--and are expected to drive up prices. For instance, sources said the Onex/Winnick group is paying double the rate that Anschutz has been willing to spend.

"It is certainly higher than UA, but we believe that the quality of the theaters here justifies a higher price," said Brian McCarthy, managing director of Winnick's Pacific Capital.

"There are good values in the theatrical business," he added. "And we continue to look at some of the other companies in the industry. . . . There's probably another half a dozen companies that are of sufficient size that we would look at [investing in]."

Sources close to Winnick, the founder of telecommunications giant Global Crossing, said Loews is the first of several theater deals he's interested in doing.

Loews and Edwards are two of nine theater chains that have filed for bankruptcy protection recently, after financially overextending themselves by building new multiplexes. A construction spree had increased the number of movie screens from 28,000 in 1995 to roughly 37,000 in 1999--as much as 30% more than the market can bear, according to analysts. By buying the bank debt of these troubled chains or investing new equity, opportunistic investors such as Anschutz expect to nurse them back to health by renegotiating with creditors and landlords and shutting down antiquated outlets or those in poor locations.

Edwards' President Stephen Coffey said he expects a definitive agreement to be completed within weeks. Edwards filed for voluntary Chapter 11 bankruptcy protection in August.

Terms of the proposed transaction were not disclosed. Analysts have estimated the value of the chain, which lost $40 million in 1999, at nearly $300 million. Edwards owes $217 million to its largest creditor, a consortium of lenders headed by Bank of America.

Loews Cineplex, which operates mostly in and around big U.S. and Canadian cities, said it plans to shut 22 of its 365 U.S. theaters immediately and 25 of its 114 Canadian theaters, and will shut at least 50 more in the future.

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Times staff writers Elizabeth Douglass and Marc Ballon contributed to this report.

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