Theaters enjoy short term boost

With the summer movie schedule fully underway and strong attendance numbers being recorded, some sources in the movie-theater industry see a short-term pick up in the industry's high yield names. But once the season's party is over, the movie houses will still be looking at a pile of debt and intense competition.

Overall, the summer is expected to post a 15% increase over last summer's $2.6 billion mark, which was itself a record, said Daniel O'Neill, an industry analyst at Credit Suisse First Boston. June posted higher-than-expected figures even factoring in the hype surrounding Star Wars: Episode I The Phantom Menace. Other movies, like Austin Powers: The Spy Who Shagged Me, Tarzan and Big Daddy, have all posted impressive numbers as well.

Austin Powers raked in $54.5 million on the opening weekend alone, while Tarzan and Big Daddy generated $34.2 million and $41.5 million on their respective opening weekends. This month is expected to continue that trend with several big pictures slated to open, while August is expected to be somewhat cooler.

Another positive impact for the sector, O'Neill said, is a favorable demographic, or what he called an "echo Baby Boom." The Baby Boomer's kids, a large segment of the population that he thinks a lot of investors have largely ignored, are now at prime ages to go to the movies, creating a wide customer base, he said. And perhaps the most positive influence on the market is the fact that price increases in the recent past seem to be sticking, O'Neill said.

But when school starts this coming fall, the industry will again be faced with the problem of too much capacity - that is, too many move screens - and too few movies to sell.

In recent years the industry has been on a tear, building and acquiring new facilities, and making them bigger and grander all the time, introducing terms like "multiplex" and "megaplex" into the mainstream. All the while, junk bond issuers like AMC, Carmike, Loews, and Cinemark have all racked up a lot of debt.

Some have even starting reacting to the overbuilding in their business plans, analysts said.

Carmike, for example, which has $200 million in outstanding debt, has begun a strategy where it refurbished its existing theaters instead of building from the ground up.

And the industry's largest player, AMC, which has $400 million in debt and 49% of the screens, has slowed down its torrid pace of expansion.

Another analyst noted that the industry is now entering the "mature" status and companies will start clustering and swapping facilities to take advantage of cost savings, which should help select issuers strengthen their balance sheets.