Moody’s upgraded Cinedigm Funding loan securitisation

Global rating agency Moody’s has upgraded to Baa3 (sf) from Ba1 (sf) the rating assigned to the Term Loan Facility (the TLF) extended to Cinedigm Digital Funding I, LLC (Borrower), an indirect subsidiary of Cinedigm Digital Cinema Corp. (Cinedigm), as a result of the execution of a backup servicer agreement. This transaction is a securitization of cash flows consisting primarily of virtual print fees (VPFs) payable by motion picture distributors. Cinedigm acts as the manager of the transaction and in that capacity has the obligation to perform various administrative and managerial duties. However the TLF itself is an obligation of the Borrower and is not guaranteed by Cinedigm. The backup management agreement will provide for another qualified party, Christie Digital Systems USA, Inc. (Christie) to replace Cinedigm if Cinedigm defaults on its obligations as the manager. The Issuer has also amended the TLF, among other things to increase the facility size to $130 million from $90 million. We believe that such amendment will not, in and of itself, result in a reduction or withdrawal of the Baa3 (sf) rating on the facility.

The key change to the transaction structure is the execution of a backup ser- vicer agreement pursuant to which Christie will serve as the backup servicer in case Cinedigm defaults on its obligations as the manager. Christie is a wholly-owned subsidiary of Ushio, Inc. of Japan, which is a manufacturer of specialty and general illumination lighting solutions and is publicly traded on the Nikkei-Dow (Tokyo). We view the change to have Christie as the backup servicer credit positive for this transaction because this will significantly reduce the operational risk to this transaction, as described in our publication “Global Structured Finance Operational Risk Guidelines: Moody’s Approach to Analyzing Performance Disruption Risk”, June 2011 (SF243145) . We view Christie as having sufficient experience to perform as the manager if the need arises.

Other key amendments to the credit agreement include: increasing the facility size to $130 million from $90 million; extending the expected maturity by appx. 1.25 years to September 2016 from June 2015; extending the legal final by appx. 1.75 years to February 2018 from May 2016; revised pricing; revised financial covenants; and revised servicing fee structure with the inclusion of an incentive fee and also a penalty if PSY declines below 12.25x. These potential amendments were also factored into our credit analysis.

Cinedigm, founded in 2000, provides services and software solutions to distributors and exhibitors of digital content, primarily movie theater exhibitors as well as markets and distributes independent film and alternative content to exhibitors, and digital, video-on-demand and physical goods in home entertainment markets.

These services include technology and software services, and financing, administrative and deployment services for digital cinema projection systems. As part of its Phase I deployment, approximately 3,724 cinema screens in the US owned by a specific group of exhibitors (the Exhibitor Group), were upgraded from 35mm projec- tors to digital projection systems. The exhibitors participating in Phase I include Carmike Cinemas, Inc. (B2), AMC (B2) and Marquee Cinemas, Inc. (NR) among others. Carmike theater screens represent about 65% of the pool while no other single exhibitor exceeds 5%. The TLF is secured by the rights to VPFs payable by film distributors for all digital prints exhibited at the Phase I theaters where the digital cinema projectors are installed. By converting exhibition to digital, film distributors cut costs considerably since the cost of distribution is much lower for digital prints than for 35mm prints. In addition, fees from the exhibition of non-film content.