RHI Prices at $14, Below Range, Raises $189 Million (Update1)

By Tim Mullaney

June 17 (Bloomberg) -- RHI Entertainment Inc., the largest maker of TV movies, priced its initial public stock offering at $14 a share, less than the company projected.

JPMorgan Chase & Co. and Banc of America Securities LLC led the offering, which raised $189 million selling 13.5 million shares, an increase from the 12.5 million proposed, according to information from the banks.

The price is $3 a share less than the midpoint of New York- based RHI's pre-sale range. Potential investors were wary of the television programmer's $675.4 million debt, said Francis Gaskins, president of IPO Desktop, a research firm in Marina del Rey, California. The company was taken private in a 2006 leveraged buyout led by New York-based Kelso & Co.

``People like to buy IPOs that fund growth, not pay off leveraged debt for existing shareholders,'' Gaskins said. ``This was a leveraged buyout, and all the IPO proceeds were going to debt and the leveraged-buyout firm.''

The stock sale will reduce debt to $509.5 million, filings said. RHI will also use IPO money to repay $30 million Kelso borrowed last month to find RHI's production, adding a $5.7 million prepayment penalty, the filing said. Kelso will be paid another $6 million after waiving its $600,000 annual management fee in March to save money, according to the filings.

Production Costs

Last year, RHI lost $22.6 million as sales rose 21 percent to $232 million. It also had negative operating cash flow of $88.8 million, as the company produced more movies than in 2006. Interest payments totaled $51.5 million in 2007.

Cash on hand amounted to $10.5 million as of March 31, company filings showed.

The company's movies include titles such as ``Lonesome Dove'' and ``The Five People You Meet in Heaven.'' It has about 20 percent of the market for TV movies, Chief Executive Officer Robert Halmi Jr. said in a June 10 presentation in New York.

After the IPO, RHI's enterprise value, including debt, is likely to be about $840 million, Melanie Hase, an analyst at Greenwich, Connecticut-based IPO research firm Renaissance Capital, said in an interview before the pricing.

RHI is likely to turn a profit beginning later in 2008, and ``things should ramp up'' in 2009, Hase said, declining to release Renaissance's specific earnings estimates.

Cable Channels

Whit Clay, a spokesman for an investor-relations firm representing RHI, declined to discuss the share sale. Kelso spokesman George Matelich also wouldn't comment.

``It gives us the liquidity and the financial foundation to move forward,'' Chief Financial Officer Bill Aliber said in the June 10 investor presentation.

The company has expanded from making movies for cable's Hallmark Channel, whose parent company owned RHI until 2006, to a roster of clients including the Sci-Fi, Spike and Lifetime networks, Halmi said at the June 10 presentation.

``All new channels are potential clients for RHI,'' Halmi said. ``It's a fantastic time to be in the TV content business.''

RHI plans to break even on new productions and profit from reselling old movies and series, including ``Cleopatra,'' Aliber said.

At the end of the first quarter, RHI had $330 million of orders to show its old movies on various channels, up from $253 million at the end of 2006, Halmi said.

The company will begin trading June 18 on the Nasdaq Stock Market under the ticker symbol RHIE.