Casting a bleak outlook for creditors, Standard & Poor's Corp. says more movie theater operators are in danger of violating financial covenants.

Massive overexpansion has already forced three big operators - Edwards Theatres Circuit Inc., Carmike Cinemas Inc., and United Artists Theatre Circuit Inc. - to file for bankruptcy in the last month and a half, and others, including Regal Cinemas Inc. and Loews Cineplex Entertainment Corp., are meeting with lenders to try to restructure their credit.

"Standard & Poor's believes that other operators may be in jeopardy of violating financial covenants as well," Steve Wilkinson, the New York agency's primary analyst for the movie theater segment, said in a conference call Friday. The agency did not name names, but Cinemark USA Inc. and AMC Entertainment Inc. are among the other big operators whose credit ratings have been downgraded in recent weeks.

Movie theater chains are being punished by overzealous building in recent years that has put pressure on profits.

Mr. Wilkinson said amending covenants is a significant step and that debtors and lenders should approach negotiations with an "open and proactive" approach. "The recent bankruptcy of Carmike, which was preceded by a violation of bank covenants, highlights the potential risk that [violation] creates," he said.

Standard & Poor's says it has found that issuers and lenders have negotiated amicably. "It's generally a pretty constructive process," said Heather Goodchild, who heads the media and entertainment group at S&P.

Bankruptcy court has been a different ballgame, however. The privately held Edwards, of Newport Beach, Calif., has become embroiled in a caustic legal battle with Bank of America Corp., the lead arranger for a $250 million credit facility Edwards issued in August 1999 to fund an expansion program and provide working capital.

While the bank and Edwards have officially been arguing about whether the theater chain should be permitted to use the cash from popcorn and candy sales, both the bank and Edwards say there is much more to it. In a Sept. 7 filing, Bank of America said the "central issue" of the bankruptcy case is that Edwards has not protected the interests of creditors and is only looking out for itself. The bank has accused the company of drawing "munificent salaries" for relatives and not being up-front about when it planned to file for bankruptcy.

Edwards contends it deliberately chose not to tell the bank when it would file because it did not want Bank of America to offset all the cash in its bank accounts. The accusations, the company said, are "a rather transparent attempt to restore some of its credibility" with the rest of the lenders and to "punish" Edwards.


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