Credit agreement amendment solidifies already strong balance sheet; company temporarily suspends quarterly dividend payments and takes additional steps to address impact of COVID-19 pandemic
The Amendment provides a new
The Amendment also amends certain covenants and other terms, including waiving the company’s compliance with the consolidated fixed charge coverage ratio covenant until
The Amendment also requires the company to temporarily suspend its quarterly dividend payments for the remainder of 2020 and limits the total amount of quarterly dividend payments during the first two quarters of fiscal 2021, unless the Term Loan A is repaid and the company is in compliance with prior financial covenants under the credit agreement, at which point the company has the ability to declare quarterly dividend payments as it deems appropriate. Pursuant to the Amendment, all borrowings under the credit agreement will be secured by substantially all of the company’s personal and real property assets, until such date as the Term Loan A is repaid and the company is in compliance with prior financial covenants under the credit agreement, at which point the credit agreement will return to an unsecured facility.
In conjunction with the Amendment, the company has also entered into amendments to the purchase agreements for its outstanding 4.02% and 4.32% senior notes that waive the company’s consolidated fixed charge coverage ratio covenant until
“The Marcus Corporation has been a conservatively run company for its entire 85 years of existence,” said
At the end of fiscal 2019, The Marcus Corporation’s debt-to-capitalization ratio was a very modest 26%. Based upon preliminary information that is unaudited and subject to the completion of the company’s first quarter financial closing procedures, as of
“Even if our theatres and hotels were required to remain closed for the rest of the year, a very unlikely scenario, we believe we have sufficient cash to sustain our operations, even without the new Term Loan A. With today’s announcement, we have provided for an additional ‘insurance policy’ to further enhance our liquidity, which we believe positions
The Marcus Corporation’s Response to the COVID-19 Crisis
Since the coronavirus crisis began, the company has been working proactively to preserve cash and ensure sufficient liquidity to withstand the impacts of the current situation and ultimately emerge in a continued position of strength. In addition to temporarily suspending quarterly dividend payments as required by the Amendment, additional measures the company has already taken and intends to take in the future to enhance liquidity include:
- Discontinuing all non-essential operating and capital expenditures;
- Temporarily laying off the majority of hourly theatre and hotel associates, in addition to temporarily reducing property management and corporate office staff levels;
- Reducing the salary of the company’s chairman and president and CEO by 50%, as well as reducing the salary of all other executives and remaining divisional/corporate staff;
- Temporarily eliminating all Board of Directors cash compensation;
- Actively working with landlords and major suppliers to modify the timing and terms of certain contractual payments;
- Evaluating the provisions of the Coronavirus Aid, Relief, and Economic Security Act of 2020 (the “CARES Act”) and utilizing the benefits, relief and resources under those provisions as appropriate; and
- Evaluating the provisions of any subsequent federal or state legislation enacted as a response to the COVID-19 pandemic.
“Based upon a preliminary review of the CARES Act, we believe we will be eligible for significant income tax refunds in 2020 and 2021 related to new rules for qualified improvement property expenditures and net operating loss carrybacks,” said Marcus. “It is also important to note our significant real estate ownership. In addition to our owned hotels, unlike most of our peers we own the underlying real estate for the majority of our theatres (representing over 60% of our screens), thereby reducing our monthly fixed lease payments. This is a significant advantage for our company relative to our peers.”
“It goes without saying that the current crisis is having a significant impact on our business. In this rapidly changing environment, we are continually reviewing the situation and will make changes to our plan as warranted. Our top priority in this unprecedented time, as it has always been throughout our 85-year history, is the safety and well-being of our associates, guests and community. Like so many businesses today, we have had to make some tough decisions. Our hope is that our movie theatres and hotels will only be closed for a short period of time. When the timing is right, we look forward to being back together again with our associates and welcoming our guests into our theatres, hotels and restaurants,” said Marcus.
Certain matters discussed in this press release are “forward-looking statements” intended to qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements may generally be identified as such because the context of such statements include words such as we “believe,” “anticipate,” “expect” or words of similar import. Similarly, statements that describe our future plans, objectives or goals are also forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties which may cause results to differ materially from those expected, including, but not limited to, the following: (1) the adverse effects of the COVID-19 pandemic on our theatre and hotels and resorts businesses, results of operations, liquidity, cash flows, financial condition, access to credit markets and ability to service our existing and future indebtedness; (2) the duration of the COVID-19 pandemic and related shelter at home and social distancing requirements and the level of customer demand following the relaxation of such requirements; (3) the availability, in terms of both quantity and audience appeal, of motion pictures for our theatre division (particularly following the COVID-19 pandemic, during which the production of new movie content has essentially ceased), as well as other industry dynamics such as the maintenance of a suitable window between the date such motion pictures are released in theatres and the date they are released to other distribution channels; (4) the effects of adverse economic conditions in our markets, including but not limited to, those caused by the COVID-19 pandemic; (5) the effects on our occupancy and room rates caused by the COVID-19 pandemic and the effects on our occupancy and room rates of the relative industry supply of available rooms at comparable lodging facilities in our markets once hotels and resorts are able to reopen; (6) the effects of competitive conditions in our markets; (7) our ability to achieve expected benefits and performance from our strategic initiatives and acquisitions; (8) the effects of increasing depreciation expenses, reduced operating profits during major property renovations, impairment losses, and preopening and start-up costs due to the capital intensive nature of our business; (9) the effects of weather conditions, particularly during the winter in the Midwest and in our other markets; (10) our ability to identify properties to acquire, develop and/or manage and the continuing availability of funds for such development; (11) the adverse impact on business and consumer spending on travel, leisure and entertainment resulting from terrorist attacks in