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Cineworld, staggering under heavy debt and facing a dip in box office revenue this quarter, asserted Friday that it’s business as usual for the giant movie chain while it explores options.
The statement follows a report today that the U.K parent of Regal Cinemas is preparing to file for bankruptcy. Cineworld presaged a potential Chapter 11 earlier this week when it noted “active discussions with various stakeholders” as it evaluates “various strategic options to both obtain additional liquidity and potentially restructure its balance sheet through a comprehensive deleveraging transaction.”
“All of our Cineworld and Regal theatres are open for business as usual, and we continue to welcome our guests and members to our cinemas globally,” Cineworld added today.
“As we announced earlier this week, we are proactively evaluating strategic options to ensure we have the balance sheet strength and flexibility to adapt to market conditions, and that process remains ongoing. We are committed to our customers’ experience and to being the ‘Best Place to Watch a Movie’.”
The high debt combined with soft box office revenue and, perhaps, a possible payout owed Cineplex of Canada, are putting a squeeze on. A Canadian court ruled in Cineplex’ favor to the tune of $1 billion in a breach of contract lawsuit
No one believes a bankruptcy means goodbye to Cineworld, rather a slimmed down and tidied up chain. Alamo Drafhouse (albeit a very much smaller circuit) has been expanding rapidly and establishing new breed of post-Covid theater experience after emerging from bankruptcy a year ago.
Exhibition has a history of rightsizing through bankruptcy. In the early 2000s, Regal merged with United Artists and Edward Theatres as they all went bankrupt after a period of massive overexpansion.
“We have seen these kind of retrenchments in the past. It’s not about the death of the exhibition business,” said one industry executive.
The Chapter 11 chatter, first reported in the WSJ, hit cinema shares hard, fair or not. From worst to best today: National Cinemedia plunged 8.7% to a buck fifty; AMC Entertainment is down 7% at $17.91; Cinemark is off 4% at $16.35 and Imax and Marcus are down, respectively, 3.2% at $15.76 and 1.61% at $17.25
AMC also faces a downdraft in meme stocks today after iconic retail investor Ryan Cohen unexpectedly exited his stake in another one of them, Bed Bath & Beyond. AMC itself narrowly averted bankruptcy multiple times during Covid but its cash position is significantly y stronger now and it’s about to start trading a new class of preferred securities, called APES, on Monday.
Theatrical doomsayers are quick to emerge at signs of trouble.
“Talk is very much overdone. There will be a restructuring. Cineworld won’t go out of business. Some underperforming theatres will be closed. Those assets probably aren’t that exciting for others to come in and pick up. Cineworld will keep its best assets and the impact on the industry will likely be minimal,” says analyst Eric Handler of MKM Partners.
“I guess we will have to see how big the changes the creditors want to make. Maybe they force the sale of some theatres. Maybe they try and split up the business and try for a spin-off of Regal,” he said.
He and others said Cineworld is eyeing bankruptcy because it way over-levered its balance sheet with Regal, which it acquired in 2017 for $3.6 billion – meaning this is sort of company specific.
“AMC has plenty of liquidity. Same for Cinemark and Marcus. The risk of these three going bankrupt anytime soon is very, very, very low. What’s happening with Cineworld is very much self-inflicted because of its capital structure,” Handler said.
Imax and National Cinemedia have potentially more exposure — Imax because of screens installed with Regal theaters. But a bankruptcy to restructure means shuttering the most unproductive theaters and that’s not usually where Imax auditoriums are located.
AMC, Cinemark and Marcus execs all recently acknowledged the current dearth of new wide-release studio product but indicated on earnings calls that they could weather the August-September drought caused by post-production delays. This year has proven that audiences are more than willing to return to theaters. Downtime will give way to Black Adam, Black Panther: Wakanda Forever, and Avatar: The Way Of Water releases in October, November and December.