Sen. Michael Bennet frequently touts his business experience restructuring billions of dollars in corporate debt while overseeing a major movie-theater chain for billionaire Philip Anschutz.
But the Regal Cinemas deal that Bennet touts in a campaign ad as a job-saver was also denounced as “looting” and “self-dealing,” involving layoffs, bargain purchases of distressed loans and massive payouts to top executives, according to lawsuits, analyst reports and news accounts from Bennet’s time with Anschutz.
Bennet’s Democratic primary challenger Andrew Romanoff on Thursday put Bennet’s work for the firm front and center in their race, launching ads concluding, “Workers and retirees get hurt, Bennet makes millions, and Wall Street greed wins again.”
Romanoff’s ads piece together lawsuit language and blogger accounts to lash out, saying of Anschutz and Bennet, “They pushed companies into bankruptcy and looted a billion dollars.”
Bennet said he is particularly incensed by the ads’ claim that he hurt the company when he thinks they saved it from ruin. “The ad is completely detached from the facts,” he said.
A Moody’s rating analyst in 2004 downgraded Regal’s debts because of the huge payouts to shareholders, saying, “It’s pretty mind-boggling to me that this company, recently out of bankruptcy, will pay out $1.6 billion.”
Reward, or ridiculous?
Piecing together the history of Anschutz’s agglomeration of the largest movie chain in the world, which Bennet has said was his job as managing director for Anschutz, is a business-school case of jobs saved and lost, of fortunes instantly created and wiped out.
Lenders and pension funds bled hundreds of millions of dollars in bankruptcy, Anschutz and his boards paid themselves hundreds of millions in dividends, and Bennet made $11.8 million in two years after steps that critics at the time called “outrageous” and that Bennet defended as reward for a risky venture.
A special Regal dividend, paying Anschutz $373 million and his top managers millions more, came just weeks after President George W. Bush signed cuts lowering the tax rate on dividends.
Bennet and executives of Anschutz’s movie-theater vehicle, Regal Cinemas, argue that the closing of some theaters as a cost-cutting measure kept major employers from failing. Although there were layoffs, thousands of jobs were saved by keeping the movie companies afloat. They say Regal is now thriving and creating jobs. Anschutz did not raid the companies only to move on; he is still the controlling shareholder of Regal, and the company’s stock held steady during the dividend payouts.
“The proof is in the pudding: The company has grown and did entirely well,” Bennet said Thursday from Washington, D.C. Asked whether Regal’s payouts were fair, given public anger over huge executive bonuses, Bennet responded simply, “Yes.”
Bennet added later, “My income was completely aligned to whether or not the company was successful.”
A common payback for risk
Analysts say the steps Anschutz and his lieutenants took to pay themselves back for their risk are common. Though they voted themselves whopping dividends, the other shareholders got the same payout. Overall, Regal survived and made money for many investors.
“It was a home run for everybody,” argues Matthew Harrigan, a longtime media-industry analyst who has followed Regal for Wunderlich securities in Denver.
“The litmus test is, if they do it and then put the company in financial danger again by over-leveraging. That’s clearly raiding the store,” said Ron Rizzuto, a University of Denver business professor who has studied Anschutz’s takeovers. “It’s not unusual to take the money out; the question is if they took too much out.”
A lawyer on one of the lawsuits against Regal said a Louisiana teacher’s pension fund, for one, thought the heavy debt used for the special dividends would harm Regal’s long-term prospects.
“Just because it wasn’t fatal doesn’t mean it was right, in the long-term interest of the shareholders,” said Geoff Jarvis, whose firm lost the Delaware shareholder lawsuit opposing the payouts. “One guy decided he wanted $600 million. And he got it.”
Lights, camera, buyout
It was another legendary buyout firm, Kohlberg Kravis Roberts of “Barbarians at the Gate” fame, that went after Regal first, soon after Bennet took a starting-level job with Anschutz. KKR paired with Hicks, Muse to buy the movie-screen chain and take it private.
The buyers came in at the end of a major growth wave among cinema companies, which had overbuilt suburban multiplexes just when home- viewed DVDs were hottest. Theater owners like KKR couldn’t sell enough tickets to pay back the debt they had accumulated for building and buyouts.
Bennet, meanwhile, a lawyer by training, took night business courses to prove to Anschutz he could handle larger work. After handling an oil and gas deal for Anschutz, Bennet then oversaw the rolling up of Anschutz’s growing interests in distressed movie-theater chains.
Anschutz began buying bad debt from the United Artists chain in 2000, then announced it would buy the California-based Edwards chain in 2001. In mid-2001, Anschutz and outside partners bought the rest of Regal’s hundreds of millions of dollars in debt for between 12 cents and 20 cents on the dollar.
Analysts used terms like “bottom fishing” to describe such deals, without meaning it as an outright insult. Here is how it works: Deep-pocketed investors buy up the distressed debt of companies on the verge of bankruptcy, then use their leverage as the main creditors to take ownership control. Bennet quickly became an expert in “pre-packaged” bankruptcies, where a new owner hopes to emerge quickly from a court case with full control and little debt.
Reports at the time said Anschutz had spent less than $500 million to buy up controlling debts in cinema chains that generated $2.1 billion in revenue in 2002. The group held one in every six U.S. screens, with 561 theaters in 36 states.
As Regal and the other chains fell toward bankruptcy, they closed screens and cut jobs to stave off collapse. Between 2000 and 2002, Regal, Edwards and United Artists shed more than 2,400 of about 26,000 jobs, including some theater closings in metro Denver.
The biggest losers in such takeovers are the lenders who sold their debts cheap or who saw their value wiped out in bankruptcy, said DU’s Rizzuto. “There is a negative connotation because you’re taking advantage of somebody’s distress. I’m pretty sure most of the investors were institutions, and they know the game. They’re not naïve like us if we put our money in and lost our life savings.”
Rizzuto added that it is “a fair argument” that in a case such as Regal’s, losing a few thousand jobs to save a company is preferable to shutting down and firing everyone.
The Louisiana Teachers lawsuit came after the next step of the buyouts. Investors like Anschutz who have risked their money to buy a troubled asset want to get paid back quickly, said Rizzuto and other analysts.
Regal became a public company again in 2002, selling $345 million in shares to the public. Anschutz kept 78 percent control through special super-voting shares.
In May 2003, Bush signed cuts that took tax rates on stock dividends down to 15 percent from as high as 35 percent.
That same May, after John Hickenlooper was first elected Denver’s mayor, he tapped Bennet as his chief of staff. On July 1, Regal closed a special dividend of $5.05 for each share, costing $715 million, much of it borrowed. On July 9, Bennet entered the Hickenlooper Cabinet.
But Regal wasn’t done paying back its new owners. In April 2004, the board, controlled by Anschutz, paid another $5 dividend, borrowing to pay out another $710 million. In May, a securities law firm sued on behalf of Teachers Retirement of Louisiana, a shareholder, saying Anschutz had a “history of self-dealing.”
“The board is looting Regal” to pay board members hundreds of millions, for “absolutely no benefit” to the larger company, the lawsuit claimed. “Phil Anschutz and others are making a killing by pocketing borrowed corporate funds,” argued a column in Forbes magazine.
Anschutz got $740 million
Anschutz personally got $368 million in the first dividend and $372 million in the second, with his top managers taking in additional millions. Bennet’s income-tax statements show he made $6.5 million in 2003, and $5.3 million in 2004; he has said he left millions more behind by leaving Anschutz before his bonuses fully vested. Regal remains his largest stock holding, according to Senate financial disclosures.
The lawsuit and some ratings agencies said Regal was taking on too much debt to pay the dividends and could falter in making the loan payments. Moody’s and Standard & Poors downgraded the company’s debt, but other analysts at the time said Regal was not borrowing too much for a company of its size.
A Delaware judge soon threw out the lawsuit, saying there was no legal justification for stopping Regal’s actions. He also noted Regal’s other shareholders benefited from the special dividends just as the wealthy managers did.
“Would they be in better shape now if they hadn’t taken on so much debt? My guess would be yes,” said Geoffrey Jarvis, of the teacher’s law firm Grant & Eisenhofer. “How many companies died because they took on too much debt in the 1980s and ’90s?”
But any shareholders like the Louisiana teachers did very well, said Harrigan, Rizzuto and others. The dividend payouts equaled the original price of the Regal public offering, and owners still held shares that stayed in the $20 range until the 2008 recession.
Regal has no debt problems right now, said Harrigan, whose firm has a “buy” rating on the company and a target of $19 a share. Bennet’s campaign says Regal now employs 2,000 more people than it did just after Anschutz’s consolidation.
“He did a very good job finding the sweet spot in the capital structure,” Harrigan said.
Michael Booth: 303-954-1686 or mbooth@denverpost.com
